Good harvests in the 1990s produced a tremendous grain (mostly wheat) surplus in Syria in recent years.1 When traveling around the country during this time, one immediately noticed the mountains of sacks of grain sitting out in the open at depots across the country, often with lines of trucks over a mile long waiting to unload more sacks of grain at what are in essence government-subsidized prices. As such, one of the major business opportunities in Syria has been (and currently still is) in grain silos. My company, Middle East International Business Associates, Inc. (MEIBA), which identifies market opportunities, arranges financing for, and represents (primarily) U.S. companies interested in entering Middle East markets, established a relationship with a grain-silo construction company in the United States to bid on this publicly tendered opportunity in Syria. Although we made it to the final cut of three companies (the contract ultimately went to an Italian firm), the problems we encountered during the course of this process, which lasted over two years, are emblematic of the obstacles that years of a state-dominated economy have produced: economic rationalization is subordinated to regime survival and regional standing, inhibiting Syria's halting progression toward economic liberalization and global economic integration.
The first priority, as in any business venture in Syria, is to choose the right local broker, who (l) informs you in a timely fashion of the opportunity and (2) has additional local contacts and information in order to help facilitate the deal and make the bid more competitive. There are prescribed entrances into the Syrian economy, carefully controlled by the so-called "five-percenters," or in Arabic, wasta (literally, "mediation"). One cannot enter into a private- or public sector business situation without wasta because the vertical patronage networks that exist in the country require it. Indeed, it provides access to decision makers for those who would not otherwise have it, but it really is an additional form of control by the state that fragments the bourgeoisie and the upper middle class, who might in its absence coalesce into a recognizable opposition. In addition, it spreads the wealth to certain classes, supplements the income of government officials tied into the five-percenter organizations, and co opts more people into the idea of maintaining regime stability. Many would argue that this is a highly corrupt system; others, especially in the area itself, would say that it is just part of doing business in the Middle East.
The problem is finding the "right" five-percenter - for every legitimate group, there are at least ten others who are in effect hustlers, who cannot even come close to providing the necessary services. We established a relationship with an influential group with whom we had not previously worked; the lack of trust emanating from this group, however, almost killed the deal on several occasions, creating bottlenecks of paperwork in order to assure and reassure them that they would be properly compensated. We should have been moving forward and working synergistically to put together a professional proposal; as it turned out, we were just barely able to submit the proposal to the proper government ministry before the deadline. This paranoia is something I have found pervasive in Syria in a number of different industry areas. It can perhaps be attributed to the reality of living in a security state, or perhaps to the pervasiveness of corruption and a legacy of broken promises and contracts. The Syrians give extraordinary attention to securing proof of a compensatory relationship. This is no way to do business, especially when time is of the essence; comfort zones and proper documentation are always desired, but obsessive concern over relatively trivial matters can often prove detrimental to getting a potential deal off the ground.
The next problem was the actual bid proposal itself. The tender called for constructing 200 grain silos with accompanying materials and including an advanced electrical system that would centrally control operations. A job of this magnitude, under normal American conditions, would cost approximately $18 million, about $9 million more than what the Syrian government was willing to pay! In other words, despite the professed desire of the Syrian government for high technology from the West in order to accelerate technology transfer as well as simply acquire a higher-quality product, most in the country are still wedded to the axiom that cheaper is better. What is advertised is usually not what the government wants. Typically then, competitors from countries such as Egypt, with cheaper labor and transportation costs, make U.S. firms non-competitive in most industry areas. In some cases, it is true, the money just is not there.
Generally, however, it is an attitude bred by a generation of Soviet and East European barter deals involving inferior products and an authoritarian corporatist system unwilling to undermine its clientele network through competition. We are still only in the game because our U.S. client was willing to strip its proposal down to the bare bones, admitting it could never even attempt to build in the United States what it was proposing for Syria - it would be laughed out of the business. We also needed to establish a joint venture with a local contractor who could help bring down the price of our bid by providing cheap local labor and materials (a plus from the government's point of view, since we would be utilizing local resources). We were successful in bringing the price of the bid down to a competitive level, but the end product would certainly not be of high quality. Economy in the long term never entered the equation from the Syrian side.2
Another problem was dealing with the bid and performance bonds. Very few international companies are willing to put up any significant bond in Syria because of the lack of a sufficient regulatory regime, the rule of law and transparency; indeed, there have been some notorious incidents involving companies that were unable to
Practical experience has led me to conclude that whether Syria is ready for peace with Israel is not simply an economic question, but one of political economy. In large measure, the Syrians are psychologically ready for at least an end to belligerency, officially consecrated with a peace document, if not yet the establishment of an intimate relationship with a full peace partner - twenty years after the Egyptian-Israeli peace treaty, Cairo and Jerusalem are still anything but close allies.3 Potential economic opportunities, a genuine desire for peace, frustration over decades of confrontation, government allegiance, and/or just nationalistic machismo will lead most Syrians to quickly state that they are ready for peace. There are others, however, who simply do not want peace or at least want to delay it as long as possible. If peace should come in the near future, whether or not it is a successful peace for Syria rests on Syria's ability to meet the economic challenges that lie ahead.
There is a great deal of economic potential in Syria, but the example of the grain-silo situation indicates that an ossified business environment continues to prevent this potential from being realized. Historical momentum, regional adversity and political culture often override economic rationality. This begs the question of whether or not Syria is ready to take on all of the economic challenges and opportunities that peace will present. Will Syria be overcome by or ride piggyback on the new wave of investors likely to invade the region, and will it be able to take advantage of peace? Or is peace even necessary to achieve sufficient economic growth? In my view, this is increasingly being considered by many Syrians as a viable alternative. All of this will affect Syrian willingness to resume negotiations and make the necessary concessions. Some history might provide insight into the future.
THE STATE BECOMES DOMINANT
Until the second half of the nineteenth century, Syria had for hundreds of years been a largely self-sufficient agrarian and trade-based economy.4 The opening of the Suez Canal in 1869, as well as the continuing economic problems of the Ottoman Empire in general by the 1870s (climaxing with its bankruptcy in 1875), forced a downturn in the Syrian economy that lasted into the early twentieth century.5 Generally speaking, Syrians are extremely adaptable to changing conditions, finding new markets and adopting new techniques when necessary.6 This did not, however, overcome the general economic malaise in Syria by World War I. A pattern of dependence upon Europe arose, where the rate of economic growth was for the most part determined by outside sources, a development that only deepened with the imposition of the mandate system. As early as World War I, there existed a strong feeling among pertinent Syrians that more state intervention was necessary in order to return economic prosperity to Syria. As Roger Owen states:
By 1914 there was fairly general agreement in such circles that political weakness was partly the result of over-dependence on agriculture (to the exclusion of industry) and on foreign financial institutions, and that the only satisfactory way ahead was to use the state apparatus to intervene more directly in pursuit of a more national economic policy.7
Because of the mandate system (the British and the French trading places with the Ottomans with respect to economic decision making), Syrians would have to wait until after another world war to actually begin charting a new economic course and promoting the state apparatus to a dominant position.8 This, however, did not preclude change from occurring in other spheres. The older generation of Syrian leaders, primarily the landed aristocratic families of Damascus and Aleppo who had held the predominant administrative positions, and thus both political power and wealth, under both the Ottomans and the French, had been largely discredited by World War II. In the eyes of a younger generation of Arabs who had become politically aware and active during the mandate years, their elders were corrupt and could not deliver on the promise of real independence from outside control. The older generation of leaders were also seen to have been co-opted by the French, and they were leading the nation toward what was termed capitalist exhaustion. This new generation of leaders, epitomized by movements formed in the interwar years, such as the Baath party in Syria and the Free Officers Movement in Egypt (that produced Gamal Abd al-Nasser and the coup of 1952), rejected not only the ancien regimes in and of themselves, but also their ideologies, based on Western European imports such as liberal constitutionalism. As someone once remarked, the leaders of the ancien regimes grew up quoting Voltaire, Locke and Mill, while their sons and daughters quoted Marx and Lenin (and Hegel and Nietzsche until fascism became discredited with the fall of Nazi Germany).
The final straw was the humiliating defeat that led to the creation of Israel in 1948. Within ten years of this epic moment, all of the primary Arab combatants' regimes had been overthrown by movements professing a vehemently anti-imperialist, anti-Israeli, and Arab socialist doctrine. As Charles Issawi noted in 1961:
In the last forty years, and more particularly in the last ten, three main shifts of power have taken place in the Middle East: from foreigners to nationals; from the landed interest to the industrial, financial, commercial and managerial interests; and from the private sector to the state.9
It was, of course, a well-intentioned process aimed at redistributing wealth and power more equitably, ending reliance on outside powers, eliminating corruption, and restoring justice. The path of state capitalism was chosen by a number of countries in the developing world at the time. One of the first official acts of these new regimes after they came to power was land reform, in order to undercut the influence and wealth of the landed aristocracy/agrarian bourgeoisie.10 These regimes established a social contract with the people, promising to erect adequate safety nets, provide employment and social services, and ensure political and economic equality. As typically happened in many countries, Syria developed instead a bloated and inefficient public sector that has for over three decades (after the Baath party formally took power in 1963) provided the support base for the ruling regime, and in the process, established a classic "Bonapartist" state, where economic policy has been driven by regime survival, especially in a regional environment that was anything but a benevolent capitalist world order.11 As time went on, the wealth funneled to the state as the capital accumulator became the source of patronage in erecting a pervasive clientelist network, primarily in the military, the bureaucracy and other sectors of society tied into the state.
The political economy of Syria during President Hafis al-Asad's years has been examined in detail by scholars such as Raymond Hinnebusch, Volker Perthes and Steven Heydemann.12 A brief review of this history is necessary in order to juxtapose current conditions as well as show the evolution of the economic problems Syria is now experiencing.
Hafiz al-Asad came to power in a 1970 intra-Baath coup that cast out the radical wing of the party that itself had come to power in 1966 and which was ideologically committed to the destruction of Israel (and domestically to a more true socialist, rather than state capitalist, economic path). The dangerous (some would say suicidal) policies of the radical wing were clearly displayed with its role in instigating the 1967 Arab-Israeli war, that resulted in Syria's loss of the Golan Heights to Israel. Contrary to popular belief, Asad's assumption of power signaled the move from an ideologically based foreign policy to a much more pragmatic one prepared to resolve the Arab-Israeli conflict diplomatically but committed to a full return of the Golan Heights.13
Domestically, it also signaled a retreat from the radical economic policies of the previous regime; indeed, Asad' s political program upon his ascension to power in Syria is called the Corrective Movement (al-harakat al-tashishiyya). Its primary intent was to bring Syria back within accepted parameters in the Arab fold and to open up the economy to the private sector. Politically, it meant establishing a working relationship with Egypt and Saudi Arabia in order to coordinate policy towards Israel. Economically, this first opening, or infitah, paralleled a similar process in Egypt under President Anwar Sadat, one that especially gained steam after the 1973 war resulted in a four-fold increase in the price per barrel of oil, a rent that largely accumulated in the pockets of the Arab Gulf states. The non-oil Arab states that bordered Israel (the "confrontation" states) benefited enormously from the new economic realities in the Middle East, because the only way countries such as Saudi Arabia and Kuwait could fight the Arab-Israeli conflict and maintain their "Arab" credentials was to provide healthy amounts of financial aid and grants to the confrontation states. Countries such as Egypt and Syria also reaped the rewards of remittances from their citizens who were arriving by the tens of thousands in the Arab Gulf states as laborers. And Syria itself, by the late 1970s and early 1980s was becoming a not insignificant oil producer (as was Egypt). It was never on a par with some of the Arab Gulf states, but by the mid-1990s Syria was producing over 600,000 barrels/day, by far the primary income for the Syrian regime.
The 1970s thus resulted in impressive growth in the Syrian economy. In fact, Asad's decision to open up the economy to allow more flexibility for the private sector was not a reaction to the inability of the public sector to accumulate capital (as it would be with the second infitah in the 1980s), but to find mechanisms to distribute the wealth suddenly entering the country. The growth was not structurally stimulated, but was due largely to Arab transfers. In addition, during the oil boom years of the 1970s, few states (and certainly not Syria and Egypt) did anything to accumulate foreign exchange reserves or direct remittances toward more productive activity. As a result, changes in the regional or international economic environment had deleterious repercussions for Syria, a country whose prosperity seemed to rely almost totally on the vagaries of the oil market and seasonal rain fall.14
THE ECONOMIC CRISIS OF THE 1980s
The decade of the 1980s was as bad for Syria as the 1970s was good. Not only were the structural defects and inefficiency of Syria's state-dominated economy becoming obvious, but the regional and international political and economic environments exacerbated already existing problems. Most damaging was the drop in oil prices by the mid-1980s due to the world oil glut. Not only did this adversely affect Syria's own oil export revenues, but it also reduced remittances from abroad as well as financial aid from the oil-rich Arab Gulf countries, which were implementing belt tightening measures for the first time since their rise to wealth. Concurrent with this development was an unfortunate decade long drought that devastated an agricultural sector that was already hurting and had been typically neglected for years in lieu of import-substituting industrialization (ISI) policies (as in Egypt, Algeria, Tunisia, Morocco, etc.).
In addition, the general Third World debt of the early 1980s reduced capital inflow, and the recession in the industrialized countries had negative runoff effects upon the developing nations. Finally, the winding down and end of the Cold War deprived Syria of the military and economic aid it had been receiving in large amounts from the former Soviet Union and the East European states.15 This turn of events contributed in great measure to Syria's participation in the U.S.-led Gulf War alliance that evicted Iraq from Kuwait in February 1991 and in the ensuing Madrid peace process that began in October 1991.16
In the early 1980s Syria developed a severe balance-of-payments and foreign exchange crisis. It had become clear that the state could no longer be the engine of capital accumulation; therefore, the regime decided that the private sector had to be given more leeway to fill the capital void, and the country as a whole had to create a more investor-friendly business environment to attract foreign investment and repatriate the billions of dollars of capital that had fled the country in the mid-1960s during Syria's radical-socialist stage (characterized by widespread nationalization). This second infitah was brought on by economic crisis and not economic largesse. A series of decrees in 1985, 1986 and 1991 were designed to open the country to foreign investment, give the private sector more freedom and opportunity, create mixed-sector enterprises with some outright privatization, and clamp down on corruption.
Perforce, President Asad embarked on what has been called a program of selective stabilization and selective liberalization.17 "Selective" because of the following dilemma: if Asad liberalizes too much and/or too quickly it may undercut the public-sector patronage system that has maintained the regime in power. Asad has tried to insulate the public sector as much as possible from the effects of incremental liberalization, but ultimately it, too, has been adversely affected (real wages have declined because of inflation due to currency devaluation, reduction of subsidies and some privatization). This explains the "zigzag" approach the regime has taken toward economic reform. It also explains the regime's schizophrenia in keeping on the books outdated and repressive laws, all but ignored by both the populace and the government, just in case they are needed for regime self-interest. Arbitrariness is used by Asad as a method of control; the 1986 foreign-currency law, ostensibly to crackdown on black market foreign currency exchanges, is a case in point.
And there is no one looking over the shoulder of the regime pressuring it to accelerate the reform process; indeed, Syria is remarkably independent of any outside interference in its economic decision making. This is the way Asad wants it, for motives related to regime survival and regional standing, but the IMF and World Bank do not, at least on the surface, integrate these political motives into their structural-adjustment plans. This independent posture on the part of the Asad regime places it out on a limb at times, with no one else to blame for periods of economic lethargy, but it is a trade-off for what Volker Perthes calls economic "ad-hocism" and for not being perceived as beholden to outside (particularly Western) interests, a charge that has been particularly damaging to the Sadat and Mubarak regimes in Egypt since the 1979 Egyptian-Israeli peace treaty brokered by the United States.18
Syria's selective liberalization has been moderately successful at best. The May 1991 Investment Law #10 set the standard for Syria's opening up to outside investment. This law offers the same incentives to local and foreign investors, i.e., companies that obtain licenses receive duty-free privileges for the import of capital goods and materials necessary for a project. At the time, this was hailed as an important step in the economic liberalization of Syria, and it was, but only if it were followed up with other necessary reforms. To date, nothing really significant in terms of economic liberalization has occurred in Syria since this investment law was promulgated over seven years ago. In any event, much of Syria's economic upturn by the early 1990s was due not so much to an intrinsically strong economy, but to the economic windfall of financing from the Arab Gulf states for infrastructural projects as compensation for Syria's important participation in the U.S.-led Gulf War alliance in 1990-1991; additionally, there was a modest increase in oil production and an end to the drought. These "soft" factors resemble the ones that led to the economic growth period of the 1970s, which may make Syria's economy as vulnerable now as it was in the early 1980s.
In addition to the continuing burden of an overly dominant public sector, there are a number of other problems inhibiting economic growth, some of which are typical of emerging-market countries. Others have been gleaned from practical experience and may or may not be peculiar to Syria:
- No private banking system or stock market to organize capital;
- An inadequate regulatory regime and insufficient transparency;
- A private sector that may be too fragmented to lead the way in capital accumulation or to attain sufficient political power in order to accelerate reform;
- An international capital shortage in which available capital has been directed toward "safer" regions; 19
- Rampant corruption, especially with the ubiquitous "five-percenters" who, in connivance with government officials, have restricted entrances into the Syrian economy;
- No tradition of large-scale domestic capital investment, or as Hinnebusch noted, "to become too big is to invite trouble from the government" as well as intervention by the powerful labor union (a strong remnant of the socialist compact), which has led to a proliferation of small-scale enterprises and investment in non-productive areas such as commerce instead of manufacturing;20
- An overall lack of professionalism within many government ministries that are generally unaccustomed to providing the data and services expected by leading multinational corporations;
- Outdated technology and techniques that make equipment congruence with Western firms difficult;
- An overall hesitancy to enact policies that could lead to unregulated foreign competition, i.e., as a latecomer, Syrian firms would be at a disadvantage and the petite bourgeoisie especially could be overwhelmed by the multinationals21 - this could force important sectors in Syria to seek alternative leadership because the social contract with the people that the Baathist regime brought with it to power would be broken, for there would be no legitimizing ideology that would soften the inevitable inequities and economic dislocation brought about by serious market-oriented reform; 22
- Finally, maybe most important in the long term, with a growth rate of about 3.6 per annum, Syria's population could grow faster than the economy with all the ensuing negative economic and social repercussions, a serious problem that many other Arab countries are now facing as well.
Syria seems to be well-along the path of what has been called "second-rate modernization," a process that can actually retard economic growth by replacing traditional crafts and occupations that provide value added with "menial" production-line jobs that perpetually place the economy at a comparative disadvantage to the West.23
Rather than an academic discipline that examines the interaction between politics and economics, when this term is applied to Syria it means the state's control of the economy. The willing formation of the dominant state apparatus was deemed necessary in the 1950s in order to correct the pervasive economic, social and political problems of the day as determined by a sector of the Syrian population that had, for the most part, been excluded from the decision-making process as well as the socioeconomic benefits that accrue from it. In alliance with the military, who also had their grievances against the ancien regime and provided the muscle to the Baathist ideologues, the government quickly became the arbiter of all things. The transition to a patronage-based authoritarian state was all too easy and expected, especially when an Alawite Muslim minority sect within Syria, through its opportunistic ascension in the military during the French Mandate and its association with the Baath party in the late 1950s, gained the reins of power by 1963. It would stubbornly hold onto them, for to lose power meant an instant return to its deprived status. Asad is not only maintaining himself and his cronies in power, but his community as well.24 There are non-Alawis in important positions within the Syrian regime, but there is no doubt within the country that this minority group, which most Sunni and Shiite Muslims do not consider to be Muslim at all, dominates the state.
As previously stated, Asad's government is, in effect, a Bonapartist regime primarily interested in regime survival. The social and economic well-being of Syria as a whole is not a goal but a means to an end." Asad no doubt understands the relationship between economic prosperity and regime stability, but his regime has created too many clientele networks to implement change in anything but an incremental fashion. Despite some macroeconomic policy changes that have trimmed the public sector base to a certain extent, more effort has actually been exerted by the regime to co-opt important elements of the private sector, i.e., the potential avenues of opposition, into the idea of regime maintenance. As a result, the private sector is still largely fragmented and too dependent upon the state to become a significant pressure group. The parallels to the Saudi monarchy are
Significant elements of the bourgeoisie have, therefore, been brought (some would say forced) into a coalition of sorts with the state.26 There are some, especially young (in their thirties and forties) Sunni entrepreneurs, who arc under pressure to leave the country. The security apparatus views them as a primary threat to its position, for this group of entrepreneurs generally wants peace and economic reform in order to enhance business opportunities. It is too early to make any sweeping conclusions, as there are cyclical crackdowns by the security services (mukhabarat), especially during this period of heightened tension with both Israel and Turkey.
Personal vendettas are also common. However, something resembling the capital (and personal) flight of market oriented Syrians in the 1960s would not at all be inconsistent with the political interests of important and powerful groups within the Syrian government today, despite the potential harm to the economy in the long run. It is a situation worth monitoring.27
Figuratively speaking, the "state" bourgeoisie in Syria not only refers to the public sector but also to important elements within the private sector. It is not surprising then, especially with the end of the Cold War and the new regional realities since the 1990-1991 Gulf War, that the offspring of those in the bureaucracy, military and state bourgeoisie (strictly defined) have been increasingly choosing private-sector careers. On the one hand, this has led to enhanced and lucrative private-sector access to political power; on the other hand, it has, as one scholar put it, "amalgamated" these societal elements behind the regime, and it has not led to an acquisition of political power itself by the private sector.28 Indeed, as Ghassan Salame has said, this state of affairs can be described as "bourgeoisies leaving politics to their masters, who secure the stability these bourgeoisies need to enrich themselves."29 Asad has provided what none of his modern predecessors was able to achieve: stability. For most Syrians accustomed to the pre-1970 frequency of military coups, this has been an acceptable trade-off for political freedom.
In any event, many within the Syrian private sector are quite hesitant to embrace full-fledged market reform. They worry, for one thing, that large multinational corporations will do to the petite bourgeoisie (shopkeepers in the suqs for instance) what Wal-Mart has done to the family-owned businesses in Smalltown, USA.30 The regime has some reservations about the repercussions of a peace accord that might lead to the virtual elimination of the petite bourgeoisie, who have been the bedrock of its support through the years (and who could seek an Islamic alternative, especially if what is confronting them is perceived to be Western economic and cultural imperialism). Asad's incremental pace of reform is largely self-serving, but it might also be more prudent than foolish. He does not want to follow the Egyptian example of the 1970s, when it was overwhelmed by internal economic change and foreign investment. The tightly knit system that Asad has meticulously built in his nearly three decades in power has only a limited capacity for change.
SUCCESSION AND PEACE
The need for political control has been especially acute of late because of two factors: (1) the succession question; and (2) the downturn in Syrian-Israeli negotiations since early 1996, combined with the upturn in military cooperation between Israel and Turkey. The succession issue became a serious problem in 1994, when Asad's eldest son, Basil, who had been groomed to assume his father's post, died in a car accident.31 A charismatic figure, he was very popular with both the military and the populace. In the wake of his premature passing, Asad called back his other son, Bashar, from London where he had been studying ophthalmology. Because he had not built up any loyalty within the military and the security apparatus, Bashar is slowly being elevated through propaganda, but he will always be somewhat suspect.
Asad cannot totally alienate the support base that has kept him in power, especially the Baath party, the militarysecurity apparatus and the bureaucracy, because he will need them when the time comes for Bashar to assume power. Indeed, there is a great deal of speculation in Syria about who will actually hold the reins of power, whether or not Bashar Asad becomes president. These discussions were not nearly as widespread when Basil was alive. Bashar seems to be genuinely liked by the large majority of the populace; he is seen to be gentle, compassionate and forward-looking, in
The potential instability a succession dispute might cause was made plain to Asad in 1984, when, during the Lebanese imbroglio, he fell seriously ill. The resulting jockeying for position within the Syrian hierarchy was very disturbing to the president, especially since it was his brother Rifaat who, as commander of Asad's praetorian guard (the Defense Brigades), was at the root of the problem. It led to a major shake-up within the government, including Rifaat’s exile until 1992. Asad does not want this to happen again, and to avoid it he needs the support of those who have been loyal to the regime. Some speculate that he should just create new support groups made up of those (especially the Sunni business community) who will promote economic reform. But it is not that simple; one cannot just flip patronage networks. Asad is not so dominant that he could jettison his military and security apparatus; his is an authoritarian regime, not a totalitarian one. Besides, those who would accelerate economic reform have been so thoroughly integrated within the system (as Asad intended) that they are too fragmented and co-opted to form an effective support group. If this were to happen, it would seem to some to be a reversion to the days when the wealthy land-owning families (the large-scale capitalists) ran the country. As such, it would be vociferously opposed by many important segments of society simply on an ideological basis.
The peace process or lack thereof also limits the extent to which the government can implement economic reform within Syria. The Syrian-Israeli talks, beginning with the Madrid meeting in October 1991 and proceeding in fits and starts since, were suspended indefinitely in February 1996 following the Hamas attacks in Israel. Operation Grapes of Wrath, which Israel carried out in Lebanon in April 1996 in order to respond to Hizbollah attacks from south Lebanon against northern Israeli settlements, only exacerbated tensions between Israel and Syria (U.S. Syrian relations, which had been steadily improving since the Gulf War, also took a tum for the worse during this episode).
Finally, the election of Netanyahu, who has publicly stated - contrary to the apparent intentions of his immediate predecessors, Shimon Peres and Yitzhak Rabin - that he will not return the Golan Heights to Syria, has delivered the coup de grace. As a result, the vitriolic, and on several occasions belligerent, rhetoric between Jerusalem and Damascus since the 1996 Israeli election has resembled pre-1990 dis course.32
On the economic front, the enhanced tension with Israel has meant that Asad must rely more heavily on the support of those elements who least want market oriented reform. He has much less
In any event, the simple signing of a peace treaty in and of itself will not provide the economic panacea that many Syrians expect. Egypt signed along the dotted line in 1979, and it is in many ways in worse economic shape today than it was then. Jordan, which signed a peace treaty with Israel in 1994, is also still waiting for its economic windfall. Indeed, with its dominant economy, Israel has benefited much more than its peace partners, something of which Asad is quite wary.34 Peace with Israel will open up the Syrian economy to more private foreign investment, increase the inward flow of economic aid from international financial institutions, and allow the government to redirect some of its defense expenditures, but, as discussed previously, all of this can also have negative consequences as well for important elements within Syria.
What peace with Israel may do is to give Asad more flexibility to enact the only thing that will improve the Syrian economy, serious systemic economic reform (not just tax holidays, selective waivers, inconsistent crackdowns on corruption, superficial foreign investment laws, etc.). In a less tense atmosphere, with pressure building on Damascus to cooperate in a Middle East "common market," it is thought that Asad would not be as beholden to entrenched interests, and that even they would see (as some have already) the necessity for an acceleration of the reform process. To some extent, this is exactly what was happening when the peace process was moving forward in 1994-1995, reflected on the economic front by two very ambitious (some would say wishful thinking) Middle East economic conferences held in Casablanca (1994) and in Amman (1995), which most of the Arab states (including Syria) and Israel attended. With the downward tum in the peace process since the Netanyahu election, the 1996 economic summit meeting in Cairo barely took place (Syria did not attend) and was full of political rhetoric with very little economic substance. Only a sprinkling of Arab government representatives (not including Egyptian, Syrian or Saudi officials) attended the 1997 meeting in Qatar; the 1998 meeting did not get beyond the early planning phase. There is considerable doubt, in my mind at least, that one could today recreate in Syria the kind of positive momentum conducive to peace that was present four or five years ago. The alignment of forces in Syria in both a regional, domestic and economic sense was more right than ever for peace during this brief period, and they may not align again in the foreseeable future.
A much more pragmatic policy vis-a vis Israel, with a clear willingness to negotiate a settlement, was apparent when Asad rose to power in 1970. But particularly after Egypt made peace with Israel in 1979, he felt the Arab world and Syria must bargain from a position of strength in order to compel Israel to do what U.N. Security Council Resolution 242 of November 1967 enjoins all those who have accepted it to do: exchange captured territories for peace. For Syria this means a total Israeli withdrawal from the Golan Heights. He has used the Arab-Israeli conflict at times to maintain power, but getting back the Golan Heights will provide him with a "legitimacy momentum" that just may allow him to break the social and political contracts he has established with select groups that currently inhibit his flexibility with regard to economic reform.
Asad has more grand strategies in mind and problems to worry about in the Arab-Israeli, regional and inter-Arab arenas than domestic economic reform. He suspects that Israel is attempting to isolate Syria through a pincer movement emanating from Israel, Lebanon and Turkey - and backed, if not orchestrated, by the United States. To Asad, Netanyahu's "Lebanon First" policy, i.e., an Israeli withdrawal from South Lebanon not linked to the Golan Heights situation, seems intended to accomplish through withdrawal what former Israeli Prime Minister Menachem Begin tried to achieve through invasion in 1982.35 The fact that it was the pro-peace Israeli Prime Minister Shimon Peres who launched the Grapes of Wrath bombardment of Lebanon in April 1996 was even more disheartening to Syrians. The perceived lack of a proper U.S. response was viewed with great disillusionment by most Syrians, and Asad essentially ignored U.S. Secretary of State Warren Christopher on his trip to Damascus to mediate the Lebanese situation.
Asad is committed to, but not desperate for, a peaceful resolution if the conditions are satisfactory, and Syria has made some significant concessions in the Madrid peace process.36 The international and regional environment dictates this path, but Asad is quite willing and able to make it a long and winding one if he feels he is being shortchanged, pressured or threatened. His strategy in the peace process is the same as it has been during the Arab-Israeli conflict, i.e., to prevent Syria's isolation and not allow Israeli dominance in the region.37 He takes an active stance, not wanting to appear defensive or coerced. Israel, and possibly the United States as well, also seems to view the peace process as part of an offensive strategy and would like Syria to come to the peace table as the result of having no other options available. Asad will go to great lengths to ensure that Syria is not placed in this disadvantageous position, even if only in appearance. How long he can maintain this posture in the face of what Damascus views as unrelenting pressure, and whether he can outlast Israel's current political environment before some sort of domestic implosion occurs, cannot be known.
Obstacles to Syria's implementing reforms that would allow it to sustain economic growth and open new doors into the global economy are plenty. The inertia of the authoritarian, Bonapartist state based on a patrimonial, clientele system is extremely difficult to overcome, especially in an unfriendly neighborhood that further restricts regime flexibility. It has been said that the Soviet Union under Gorbachev was guilty of instituting glasnost without perestroika, while the Chinese leadership has been accused of implementing perestroika without glasnost. Asad can legitimately be accused of not doing either, yet Gorbachev, Yeltsin, Deng and Jiang have probably envied the Syrian president's remarkable staying power and the regime's stability, control and, at a certain level, even popularity. Asad's luck, with timely oil-price hikes and good harvests, his farsighted political choices, such as the decision to join the U.S.-led Gulf War alliance, and his selective stabilization and liberalization have allowed him to weather severe political and economic crises.
Finding the "magic pace" of reform that will contribute to economic growth while not undermining his support base is the key, and his zigzag approach has been fairly effective. But time is not on his side. The hard economic realities will most likely require a watershed change of policy in the not too distant future, regardless of progress on the peace front. Investment Law #10, which was hailed at the time as the beginning of true economic liberalization in Syria, is already over seven years old, and not much has happened since. It has not, thus far, inaugurated the opening up of the Syrian economy. Syria's history, political culture, business environment and regional setting are working against Asad, but regional circumstances may again allow him room to wade through the mess intact.
With the recent severe economic problems in the export-led growth states of East and Southeast Asia and the virtual collapse of Russia, other countries in the developing world who have been either voluntarily or involuntarily adopting market-oriented economic strategies are raising questions about the direction and pace of reform. In the aftermath of the victory of the market democracies of the West over the centrally-controlled socialist/communist countries of the Soviet bloc, the capitalist route has been the path of choice in much of the developing world to integration into the global economy, a necessary step toward stabilized economic growth. The reform measures, as outlined in this paper, generally have centered around price liberalization, increased market openness and transparency, and privatization of previously state-controlled enterprises. These countries would be economically restructured along the Western model, with the innate hope in the West that political reform (in the direction of democracy) would accompany or at least soon follow economic reform. Cynics would say that the IMF and the U.S. government are working hand-in-hand to shape the world in the free-market image that benefits American economic growth.
The collapse in Russia resulting from the failed liberal experiment (government inability to collect taxes, to adequately regulate banks, to pay wages, or to finance debts, and the deleterious pervasiveness of the Russian mafia) has given a country like Syria reason to pause, or at least justify its deliberate pace of reform. The Asian economic crisis of the past year has also given a country like Syria reason to question whether integration into the global economy is a good thing. It could not only backfire politically as suggested above; but it might also not even be in the country's best long-term economic interests, although this was taken as a given until recently. As a result, the call for a gradual adoption of market economic policies has grown, adding credibility to Asad's deliberate approach toward economic reform. A more open economy is still the stated goal, but now maybe one that still maintains a large welfare safety net, and one that is, as a result, much more politically feasible and popular, at least in the short term. Forced capitalism leads to Russia, or so the thinking goes. The example of Poland, which implemented an affordable safety net in reaction to the "shock therapy," cold-turkey liberalization of 1990, offers an attractive alternative, even though liberalization was necessary to raise the money needed to provide that adequate safety net. All of this, whether justifiable or not, can only slow the pace of reform in Syria, as skeptics offer genuine fears and ex post facto rationalizations in order to slow the already crawling pace of change.
Ultimately, a country is ready for peace when the benefits that accrue from it are seen as outweighing possible negative repercussions. This may be less the case for Syria today than it was a year or two ago. Syria has been making incremental economic progress, and it has concluded significant contracts with European partners (such as a $11 8 million deal with Ericsson to install telephone lines and a $400 million oil and gas deal with Elf Aquitaine and Conoco) and recently signed a framework for an association agreement with the European Union, with the cautious intention of participating in the envisioned free-trade market, the Euro-Mediterranean Partnership Program.
If the Syrian economy can get by, as it has in recent years, especially with timely financial assistance from the Gulf, the incentive for peace becomes more political than economic. Syria might be less ready for peace, which would make the early resumption of negotiations with Israel or the delineation of concessions it might be willing to make much less of an urgent need.
1 The title of this paper was chosen with the undeniable realization by this author that since early 1996, if not before, most Syrians would suggest a more appropriate title would have been, "ls Israel Ready for Peace?"
2 On one bid proposal with a U.S. cold-storage group we represented in Syria, the lack of equipment congruency developed into a serious problem. The Syrian government insisted on using an ammonia-based system, which is all but totally outdated in the United States. We asked why it was insisting on ammonia based when the U.S. company's system would be much more durable and productive, thereby saving money in the long term. The response was that the workers wanted to be able to smell a leak when the system inevitably broke down. The natural expectation of inferior-quality material seemed to cloud their judgment - a frustrating inability to conceptualize over the long rather than short term based on psychological as well as practical factors. Ultimately, the U.S. company's bid came in twice as high as the winning bid, which was an outdated, used, East European ammonia-based cold-storage system.
3 This is one of the obstacles to a Syrian-Israeli peace: while Israel wants a normalization of relations, replete with full diplomatic representation and freedom of trade and travel, Syria prefers simply a peace accord representing non-belligerency with normalization developing over the long term and of its own accord.
4 The country known as Syria today officially came into being after World War II, a segmentation of the traditional Syrian hinterland that was, in effect, preordained with the formation of the European-imposed Mandate system after World War I, when France was assigned the mandate for Syria as well as Lebanon (which was split off from Syria,) and Britain became the mandate power for, inter alia, Palestine and Transjordan. During the 400-year rule of the Ottoman empire in the heartland of the Middle East that ended with WWI, Syria was traditionally taken to include what is today Lebanon, Israel and Jordan.
5 For a discussion of the Syrian economy during this period, see Roger Owen, The Middle East in the World Economy 1800-1914 (New York: Methuen, 1981), pp. 76-82, 153-179 and 244-272.
6 Ibid., p. 289.
7 Ibid., p. 293.
8 For more on this transition, see the classic work on the subject by Philip S. Khoury, Syria and the French Mandate: The Politics of Arab Nationalism, 1920-1945 (Princeton: Princeton University Press, 1987). Indeed, it was worse under the French because of the lack of resources the French had in the country (compared to the Ottomans) to essentially buy political loyalty, the difference in cultural attitudes and practices, and the French policy of divide and rule imported from the quite separate colonial environment of Morocco.
9 Charles Isaawi, The Economic History of the Middle East 1800-1914 (Chicago: Chicago University Press, 1966), p. SOS.
10 On this transformation, see Hanna Batatu, "Some Observations on the Social Roots of Syria's Ruling Military Group and the Causes of its Dominance," Middle East Journal, Vol. 35, Summer 1981.
11 On the threatening regional and international environment of the 1950s, which greatly contributed to the political and economic direction of Syrian regimes, see David W. Lesch, Syria and the United States: Eisenhower's Cold War in the Middle East (Boulder, CO: Westview Press, 1992).
12 See particularly Hinnebusch's Authoritarian Power and State Formation in Baathist Syria: Army, Party, and Peasant (Boulder, CO: Westview Press, 1990) and "Syria" in Tim Niblock and Emma Murphy (eds.), Economic and Political Liberalization in the Middle East (London: British Academic Press, 1993), pp. 177- 202; Heydemann's "The Political Logic of Economic Rationality: Selective Stabilization in Syria," in Henri Barkey (ed.), The Politics of Economic Reform in the Middle East (New York: St. Martin's Press, 1992), pp. 11-39; and Perthes's The Political Economy of Syria under Asad (London: I.B. Tauris, 1995), which I believe is the standard and most comprehensive work on the subject. For a series of essays on Syria's attempts at economic liberalization, see Eberhard Kienle (ed.), Contemporary Syria: Liberalization between Cold War and Cold Peace (London: British Academic Press, 1994). Both Hinnebusch and Perthes wrote essays in this volume.
13 Asad was minster of defense in the Syrian government at the time of the 1967 Arab-Israeli war, so he feels a personal responsibility to regain in its entirety the land lost to Israel. Asad and the Syrian public are absolutely committed to this, and any thoughts that Syria will now or in the foreseeable future accept anything less than full Israeli withdrawal are unrealistic.
14 Heydemann, "The Political Logic of Economic Rationality," p. 32.
15 Various estimates put the range of the Syrian debt to the USSR/Russia in the neighborhood of $10-12 billion. Russia obviously wants some or all of this amount eventually paid back; however, Asad firmly believes that the debt was erased when the Soviet Union ceased to exist, and in his view, it was not just a one-way street - Moscow received in-kind the political and diplomatic influence it was seeking in the Middle East in large part through Damascus. Other than this, Syria's debt is relatively modest compared to other lower middle income countries (although large when viewed per capita).
Also, it should be noted at this time that I do not list "military burden" as one of the main reasons for the downturn of the Syrian economy in the 1980s. Certainly some military spending could have been diverted toward more productive enterprises; however, most of the money spent toward Asad's goal of achieving at least a deterrent strategic parity against Israel in the 1980s (so that Syria could bargain from a position of strength and counter its isolation within the Middle East due to its unpopular support for Iran in the Iran-Iraq War and Egypt's signing of a peace treaty with Israel in 1979) came from outside sources, particularly the Soviet bloc and the Arab Gulf states. Indeed, if it were not for Syria's geographic and confrontational position in the Arab-Israeli arena, it would have received very little aid, whether economic or military, from outside sources (an environment that also had its political benefits as well in the domestic arena). There are a good many economists who debate the supposed debilitating effects of an overly large military. It depends on the specific situation, but a large military can provide a measure of economic relief for the regime by employing thousands of young men who would otherwise be unemployed. It can, therefore, at least be said that Syria's military burden is actually not as heavy as it would appear or has been portrayed. For more on this question, see Patrick Clawson, Unaffordable Ambitions: Syria's Military Buildup and Economic Crisis (Washington, DC: The Washington Institute for Near East Policy, 1989).
16 Syria's participation was, of course, also based on its enmity toward Iraq because of severe differences on a number of political, ideological and geographical issues; it was similar to Asad's decision to support nonArab Iran in the 1980-1988 Iran-Iraq War, the only significant Arab country to do so.
17 See Steven Heydemann, "The Political Logic of Economic Rationality: Selective Stabilization in Syria," in Henri Barkey ( ed.), The Politics of Economic Reform in the Middle East (New York: St. Martin's Press, 1992), pp. 11-39.
18 Volker Perthes, The Political Economy of Syria under Asad (London: J.B. Tauris, 1995).
19 For example: only 1/3 of l percent of the $62 billion of equity flows to emerging markets last year went to the Middle East; in addition, only 3 percent of private capital flows went to the Middle East between the years 1980-1993. All this means that capital is going elsewhere because the Middle East business environment, for a host of reasons, is not particularly attractive. Henry T. Azzam, Capital Markets in the Arab World (Washington, DC: The National U.S.-Arab Chamber of Commerce, 1995), p. 1. This, however, may change a bit in light of the recent problems in Russia and East and Southeast Asia. I have definitely detected more of a willingness by large-scale investors to give the Middle East a hard look, especially by those who want to shift their investments away from problem zones (this is particularly the case in the telecommunications, IT and hospitality industries).
20 Hinnebusch, "Syria," p. 194. If a company becomes too large, it will be "noticed" by the government, which means it could become subject to the arbitrary crackdowns against black market activities in foreign currency and goods in which virtually all Syrian companies engage. The flip side of this is that in order to avoid arbitrary crackdowns, government officials must be paid off, and a company then becomes subject to the whim of others. With regard to the strong Syrian labor union (the General Federation of Trade Unions or GFTU), which is still one of the significant hallmarks of the Baath party, so many benefits and services need to be paid according to union strictures that many entrepreneurs cannot afford to hire more than ten workers or so, all of which puts downward pressure on the size of private-sector businesses and prevents the formation of a large-scale private manufacturing sector.
21 Miyoko Kuroda, "Economic Liberalization and the Suq in Syria," in Tim Noblock and Emma Murphy (eds.), Economic and Political Liberalization in the Middle East (London: British Academic Press, 1994), pp. 204-205.
22 Hinnebusch, "Syria." p. 178.
23 Rodney Wilson, Economic Development in the Middle East (London: Routledge, 1995), p. 49. Having said this, some economists point to the possibility of emerging market countries that are in the pre-industrial or early industrial stages, leapfrogging the development of a manufacturing base and entering into the service-oriented economy that has become increasingly characteristic of economics in the West.
24 Although this has not stopped intra-Alawi Baathist struggles from occurring, such as Asad's overthrow of the Alawi regime led by Salah Jadid in 1970.
25 As Wilson observed of similar economics in Iran under the shah, Turkey under Ataturk, and Egypt under Nasser, "industrialization has been pursued with a disregard for financial objectives because profit has not been a major or even a significant motivation." Rodney Wilson, Economic Development in the Middle East (London: Routledge, 1995), p. 39.
26 Perthes, The Political Economy of Syria Under Asad, p. 254.
27 Interviews with prominent Syrian officials and businessmen in November 1998. The demonstrations and attacks on the U.S. Embassy in Damascus and on the U.S. ambassador's residence in December 1998 following the U.S. and British air attacks against Iraq also could be seen in this light. This could not have occurred to the extent it did without the approval of (and even cooperation with) elements of the mukhabarat. If this was the case, it is unknown whether the green light was given from Asad - I suspect not (since Asad clearly placed Syria on the coalition side vis-a-vis Iraq by supporting the GCC plus two Damascus Declaration group statements placing the responsibility for the crisis between Iraq and the U.N. and the United States squarely on Saddam Hussein), which further hints at the possible growing disconnect between the security apparatus and the regime with regard to domestic and foreign policies.
29 Ghassan Salame, al-Mujtama wa al-dawlaji al-mashriq al-arabi [Society and State in the Arab East] (Beirut: Center for Arab Unity Studies, 1987), p. 206 (as quoted in Perthes, p. 254 ). Perthes goes on to note that "the chambers as the official representatives of Syria's business community would not even, as one member of the Damascus chamber of Commerce executive sarcastically noted, submit a memorandum to the Prime Minister unless asked for it." (Perthes, p. 254).
30 David W. Lesch, "Damascus Won't Accept Peace at any Price," The Christian Science Monitor, December 6, 1995.
31 For a particularly interesting piece on the succession issue, sec the article written by Douglas Jehl in The New York Times, January 28, 1997.
32 For example, sec widely reported claims by Israeli "security chiefs" in October 1996 that Syria was preparing for the possibility of launching a limited war against Israel to regain the Golan Heights (a la Sadat in the 1973 Arab-Israeli war), and, as a result, the Israeli army was seeking an additional $1.1 billion to build up its defense capability. Associated Press report, San Antonio Express-News, October 29, 1996; The New York Times, October 29, 1996. For a reaction casting doubt on Israeli claims, see David W. Lesch, "Syrian Threat to Israel not as Reported," San Antonio Express-News, November 11, 1996.
33 For instance, Syrians arc often taught that their homeland has been for millennia an object of desire to the Judaic, Turkic and Persian civilizations, a situation that many feel still exists today. Being a crossroads of civilization may be good for tourism with the plethora of impressive archeological ruins from empires gone by, but it has not been particularly healthy for the nation's psyche.
34 Asad was quoted in Al-Ahram (Egypt) in December 1995 as saying that Shimon Peres's vision of a Middle Eastern common market was ultimately an attempt to "eliminate the concept of Arabism, and by extension the Arabs...our inner feeling of being a nation, and our national and social identity...." Quoted in Patrick Seale and Linda Butler, "Asad's Regional Strategy and the Challenge from Netanyahu," Journal of Palestine Studies, Vol. XXVI, No. 1, Autumn 1996, p. 36.
35 Greatly exacerbating Syria's fear of being encircled was the deepening Israeli-Turkish military relationship symbolized by a series of defense agreements in early 1996; indeed, one could see the Hizbollah rocket attacks into northern Israel that elicited the Israeli Grapes of Wrath as Asad's response to this development. The deterioration in Syrian-Turkish relations is reminiscent of the 1950s when the United States under the Eisenhower administration attempted to pressure, through Turkey, a Syria that, from Washington's point of view, was becoming a Soviet client-stale (on this subject, see David W. Lesch, Syria and the United States Eisenhower's Cold War In the Middle East (Boulder, CO: Westview Press, 1992). On Syrian-Hizbollah relations, see Graham Usher, "Hizbollah, Syria. and the Lebanese Elections," Journal of Palestine Studies, Vol. XXVI. No. 2, Winter 1997, pp. 59-67.
One must also remember that Iraq is viewed from Damascus as a potential threat, especially since Syria's participation in the anti-Iraq Gulf War coalition (although there have been of late repeated reports of attempts by Damascus and Baghdad to improve relations, almost in direct proportion to the demise in Syrian Israeli relations). Syria's continued alliance with Iran can be seen as Asad's attempt to prevent total isolation and to increase his leverage vis-a-vis Iraq as well as the peace process. The fact that Jordan and Egypt arc at peace with Israel, that the PLO signed a Declaration of Principles for peace with Israel, and that current peace negotiations are focusing entirely on the Palestinian situation only feeds into the fear of Syrian isolation and marginalization. A host of other issues also complicate Syria's relations with Iraq and Turkey, such as the Kurdish problem and the potentially explosive issue of water-sharing (for more on this, see Robert Olsen, "Turkey-Syria Relations Kurds and Water," Middle East Policy, Vol. V, No. 2, May 1997, pp. 168-193)
36 See Patrick Seale and Linda Butler, "Asad's Regional Strategy and the Challenge from Netanyahu," Journal of Palestine Studies, Vol. XXVI, No. 1, Autumn 1996, pp. 27-41; Raymond A. Hinnebusch, "Does Syria Want Peace? Syrian Policy in the Syrian-Israeli Peace Negotiations," Ibid.; and, "Fresh Light on the Syrian-Israeli Peace Negotiations: An Interview with Ambassador Walid Moualem," Journal of Palestine Studies, Vol. XXVI, No. 2, Winter 1997, pp. 81-94.
37 Seale and Butler, pp. 36-37; Asad himself noted that, "our stance in the battle for peace will not be less courageous than our stances on the battlefield"; Shimon Peres observed that Asad "is conducting the peace process just as one conducts a military campaign - slowly, patiently, directed by strategic and tactical considerations." Both quotes in Hinnebusch, "Does Syria Want Peace?," pp. 44-45.