Throughout the late 1980s, Syria’s economy suffered persistent difficulties. Shortages of imported machinery and spare parts led to underproduction and quality control breakdowns in the country’s larger factories. External indebtedness rose to some $4.9 billion by 1988; payments on foreign loans fell more than $100 million into arrears by early 1989 and about $210 million behind by the winter of 1989-1990. Foreign exchange became so scarce in the spring of 1989 that the central administration started rationing its meager stockpile of hard currency, giving priority to those enterprises most likely to generate export earnings, particularly the assembly of light manufactured goods and agricultural commodities.

As the 1990s draw to a close, however, prospects for the Syrian economy look considerably brighter. The country’s gross domestic product continues to grow at a steady pace, whether measured in terms of annual rates of increase or in terms of absolute value. Syria’s perennial balance of payments deficits largely evaporated after 1990, thanks to consistent increases in exports of petroleum, manufactured goods and agricultural produce. More importantly, fixed capital formation in both the private and public sectors, which registered unprecedented rates of increase at the beginning of the decade, continues to rise.

Such trends indicate that the Syrian economy has experienced a dramatic improvement in recent years. According to some observers, the ongoing expansion has laid a firm, even “irreversible” foundation for the reemergence of a market-driven economic order. [1] Nevertheless, the political dimensions of this upturn remain subject to two different interpretations. These two perspectives diverge in their interpretation of the relationship between private capital and the state. Likewise, both have implications for the way in which class politics in contemporary Syria are understood.

Capital-State Antagonism

The first well-established argument explains recent developments in Syria’s political economy in terms of conflict between private capital and the state. [2] According to this view, the current economic expansion has strengthened private commerce and industry, as well as larger private agriculture. By the end of the 1980s, private capital held some 40 percent of total fixed capital. Domestic and foreign trade moving through the private sector jumped from 10 percent in the early 1980s to over 20 percent by 1986, and then soared above 30 percent two years later.

By setting up new capital-intensive enterprises, private commercial, industrial and agricultural interests pushed the confines of the private sector during the 1980s. The latter half of the decade witnessed “a significant real increase in the number of bigger industrial establishments” in Syria, especially those with “comparatively large capital investments.” [3] Greater incentives to produce consumer goods for external markets precipitated a proliferation of smaller-scale, highly capitalized textile and food processing plants in the suburbs surrounding the north-central city of Aleppo. Manufacturing’s share of gross fixed capital formation jumped as the 1980s ended, and continued to rise as the 1990s began.

The success of new, well-capitalized firms provided private interests with greater leverage vis-a-vis state officials, who stood to gain little by continuing to subsidize Syria’s increasingly unproductive public sector. A gradual shift in power between private capital and the state was most evident in the expanding role of the country’s chambers of commerce in formulating economic policy. Between 1963 and 1981, these institutions exercised little if any influence over policy making. In 1974, “a Syrian economist noted in a semiofficial study that the chambers of commerce no longer had a meaningful place in the country’s political economy, and were badly in need of reform in keeping with the new realities of Syrian socialism.” [4] By the late 1980s, however, prominent members of the Damascus chamber had assumed powerful positions in several key government agencies, most notably the Committee for the Guidance of Import, Export and Consumption. Such positions enabled richer Damascene merchants to voice their opinions at the highest levels of the central administration. As one senior member of Damascus’ chamber stated in August 1991, “Whether we agree or disagree with its decisions, we are there in the room and they consult us on every step.” [5]

In May 1991, the government promulgated a revised investment law that codified major components of the regime’s economic strategy for the coming decade. According to the terms of the new code, projects that increased the number of jobs inside Syria, reduced imports or augmented exports were permitted to bring machinery and other inputs into the country duty-free; they were also exempted from taxation for at least five years and were allowed to repatriate profits overseas annually. Encouraged by the positive response this law elicited from outside investors, state officials amended the code in early October 1991 to permit Syrian nationals in the country to invest hard currency on the same terms as expatriates and foreign residents.

Throughout the latter half of the 1980s, public-sector workers complained that the central administration was courting foreign and local private capital at the direct expense of Syria’s existing state-run enterprises. A report circulated among delegates to the November 1986 annual conference of the General Federation of Workers’ Unions accused government officials of encouraging private merchants to import manufactured goods into the country, thereby diminishing local demand for the items produced in public sector factories.

Radical Baathists and Communists expressed considerable displeasure over the state’s draft budget when it was submitted to the People’s Assembly for consideration in late April 1992. Proposed reductions in social welfare spending, along with the generally low tax rates levied on private enterprises, elicited unusually strong criticisms from representatives of the workers’ and farm laborers’ federations. Rank-and-file discontent inside the latter organization erupted once again toward the end of August 1992, when Prime Minister Mahmoud al-Zu‘bi told a convention of the executive officers of the country’s chambers of commerce that the government planned to augment support for export-oriented projects in the private agricultural sector.

Faced with widespread disaffection inside the Baath Party-affiliated popular front organizations, state officials allocated additional resources to revitalize Syria’s public sector. The board of directors of the al-Furat tractor factory, for instance, announced in August 1992 that it would reopen the moribund assembly line outside Aleppo using diesel engines imported from Britain. Between mid-1992 and mid-1993, the government contracted with the Military Housing Company to build 28 large grain silos throughout the country. In November 1992, a commission set up to investigate ways in which the public sector might be restructured announced that managers in state-run companies would be granted more autonomy to set day-to-day policy, while any public enterprise that succeeded in earning hard currency would be allowed to use these monies for its own benefit.

Nevertheless, the central administration found it impossible to resist pressure from private capital to step up the deregulation of the local economy. In September 1992, the Ministry of the Economy and Foreign Trade hinted that it intended to issue new regulations allowing private companies to keep all their export earnings, so that these firms could purchase equipment and other inputs that would enable them to expand. Around the same time, the Higher Council for Investment awarded operating licenses to 20 more private sector projects under the terms of the 1991 investment law. That December, the Ministry of the Economy and Foreign Trade announced plans to create a new bank to provide investment capital to the private and mixed-sector firms that had already received operating licenses from the council.

Encouraged by such measures, private capital moved into sectors of the economy that had previously been reserved for the public sector. In the spring of 1994, a subsidiary of a Greek industrial equipment company broke ground for a plant outside Tartous to manufacture cranes, turbines and generators for export. [6] That fall, the Higher Council for Investment authorized construction of the country’s first privately owned cement plant. [7] The next November state officials opened flour milling and iron and steel rolling to private companies. [8] In the fall of 1996, the council approved the formation of a private company to supervise the construction and operation of a 600-megawatt power station to supply electricity to Lebanon. [9] Financing for a large-scale private sugar refinery at Tartous was secured that October.[10] Private investors also expressed interest in funding a privately owned petroleum refinery. This proposal, however, has yet to win the approval of the Ministry of Petroleum and Mineral Resources. [11] Each of these projects stands in direct competition with one or more existing state-run companies. The private cement plant, for instance, is being constructed at the same time as a new state-run cement factory, both located on the outskirts of Hama. [12]

Conflict between private capital and the state most recently surfaced around a 1986 law prohibiting Syrian citizens from holding hard currency. Entrepreneurs, industrialists and merchants complain that the statute places insurmountable obstacles in their path. Some forces inside the regime appear to agree. In April 1996, the government-sponsored daily Tishrin printed an editorial urging the cabinet to revise the law. [13] Later that summer, the Commercial Bank of Syria changed its policy to allow depositors to open hard currency accounts. The bank then revised the most widely used of the three official exchange rates to bring it more closely in line with rates found on the open market. Businesspeople immediately criticized the devaluation, pointing out that the bank regularly refuses to sell dollars for any amount of Syrian lira. [14] In response to these criticisms, the minister of the economy and foreign trade announced that the Commercial Bank of Syria would soon begin providing investors a wide range of services, including stock offerings and mutual funds. [15]

Friction between influential private interests and the state can also be discerned in the December 1996 elections to select a new governing council for the Damascus chamber of commerce. As part of his electoral campaign, one prominent venture capitalist published an open letter to the membership of the chamber that sharply criticized the government’s current economic program. The candidate, Riyad Saif, called for the immediate creation of a stock market, the implementation of a unified exchange rate and substantial reductions in taxes levied on private enterprise, as well as for the abrogation of laws prohibiting the operation of private and foreign banks inside Syria. [16] Saif unexpectedly won the election.

Capital-State Collaboration

An alternative argument claims that large-scale private capital and the state share two overriding common interests: first, to ensure domestic tranquility and, second, to establish a unified national market inside Syria. According to this view, government officials imposed direct state supervision over key sectors of the local economy beginning in 1964-1965, primarily in response to the central administration’s evident incapacity to carry out basic regulatory tasks throughout the 1950s and 1960s. [17] Progressive capitalists acquiesced in the enlargement of the public sector, partly as a way of bringing the country’s well-organized and politically active labor movement under centralized control and partly to undercut Syria’s old agrarian and commercial bourgeoisie, whose activities were largely dictated by “primordial ties” rather than by market principles and who consistently opposed the state’s efforts to create an integrated domestic economy. [18]

Collaboration between progressive, large-scale capital and the state reached its zenith during the Islamist uprising of the late 1970s and early 1980s. Support for the militant Islamist movement proved strongest among small-scale manufacturers and traders based in the north-central cities, whose operations were hurt by the emergence of capital-intensive enterprises geared to supply a nationwide market. [19] Confronted with open rebellion on the part of forces linked to discrete localities, the richer merchants and industrialists of Damascus rallied to the defense of the Baathist regime. Government economic policy in the wake of the uprising consolidated the position of both large-scale capital and the state by encouraging the expansion of capital-intensive industry and agriculture, while at the same time extending the scope of the central administration. [20]

As the 1980s drew to a close, however, the alliance between progressive, large-scale private capital and the state started to disintegrate. Syria’s central administration had by this time generated a stable institutional structure capable of governing relations between capital and labor. Workers in established public-sector companies had been persuaded to limit their political ambitions to running for office in periodic trade union elections, while newer state-run enterprises had been set up in districts that lacked a tradition of labor activism. [21] Meanwhile, relations between owners and workers in private factories were characterized not only by “high levels of paternalism but also by high mobility, at least in the smallest firms.” In the great majority of privately owned companies, “problems were resolved more or less amicably based on which side was dominant, the state of the market, or the good will of the owner.” [22] Comparatively high workers’ salaries further greased the wheels of private industry. The evolution of labor relations in agriculture exhibited a broadly parallel trajectory. [23] Marked reductions in the frequency and intensity of conflict in the workplace deeply eroded the grounds for collaboration between private capitalists and the central administration.

Furthermore, the regime had by the beginning of the 1990s put in place a network of legitimate “institutional mechanisms for resolving conflicts” among rival social forces. [24] Arguably the most prominent of these was the rejuvenated People’s Assembly, whose heterogeneous membership included not only well-heeled representatives of private capital but also vocal ideologues drawn from the radical wing of the Baath Party, along with a handful of religious notables from the north-central provinces. [25] President al-Asad buttressed the resurrection of the People’s Assembly by systematically dismissing senior commanders of the country’s security forces and replacing them with individuals who had experience administering civilian agencies. [26]

By this time, the central administration had effectively broken up long-standing monopolies rooted in ethnicity and kinship, replacing them with procedures designed to allocate investment capital according to the peculiar dynamics of the Syrian market, rather than disbursing funds on the basis of “primordial ties.” The few surviving scions of the pre-1963 bourgeoisie proved unable to match the business acumen of the emergent “medium-size entrepreneurs, mostly active in small industry, manufacture, commerce and some types of services” who profited most from economic liberalization during the late 1980s; nor could they match the political savvy of “the upper stratum of nouveaux riches, or the ‘new class’ (tabaqa jadida),” whose members had parlayed their intimate connections with the state into dominant positions in “real estate, construction, agro-business, tourism and transportation.” [27] In fact, the pre-1963 bourgeoisie tended to go out of its way to avoid cooperating with the Baathist elite, thereby creating opportunities for ambitious smaller-scale manufacturers and merchants to carve out profitable niches in which to operate. [28] By the early 1990s, “several forms of private encroachment on public resources, such as ‘organizing’ public employment for friends and dependents, became either difficult or less attractive. At the same time, a process of ‘destatization’ has taken place: the state’s regulative potential declined, while the role of the private sector increased, and certain public resources were placed at private disposal.” [29] Under these circumstances, private entrepreneurs who could make a case for their projects on the basis of conventional economic criteria found themselves at a marked advantage in dealing with government planners and external financiers alike. Market principles assumed an even greater role in determining the allocation of investment capital in the wake of the 1991 Gulf war, as monies from such institutions as the Kuwait Fund for Arab Economic Development and the Arab Fund for Economic and Social Development began to flow into the country. The managers of these institutions demanded detailed cost estimates for every proposal submitted for their consideration, and they authorized disbursements of funds only when the paperwork was in order. [30]

Consequently, government officials did not need to be coerced by private capital into reducing the level of state intervention in the Syrian economy. The authorities promulgated the May 1991 Investment Law of their own volition. Two months later, the People’s Assembly lowered corporate and personal tax rates. [31] During the spring of 1994, state officials began approving proposals by private companies to invest in areas of the local economy that had earlier been reserved for the public sector, while at the same time cutting subsidies on fuel oil and electricity. [32] The longstanding prohibition against the importation of Central American bananas was canceled that summer, as was a ban on imports of canned fish. Customs duties were subsequently eliminated on virtually all goods brought into the country from Lebanon. [33]

State efforts to deregulate domestic commerce and industry opened a wide range of profitable opportunities for favorably situated private interests, whose activities tended to cluster outside areas dominated by Syria’s entrenched public sector. This trend was most evident in the case of the textile factories that proliferated in and around Aleppo in the late 1980s. Most of the private yarn and cloth mills that opened in the city during these years were located not in the industrial zones that had been created by government planners during the preceding decade to house large-scale state textile plants, but rather in former residential districts, such as Kallasa immediately southwest of the old city. [34] By the early 1990s, private textile and food processing factories were springing up far outside the city of Aleppo itself, on lands previously devoted to agriculture. This trend accompanied the appearance of greater specialization in textile manufacturing, while heightening demand for more flexible means of transportation for both labor and output. [35]

The emergence of dynamic pockets of private enterprise laid the foundation for a reappearance of discrete local economies throughout Syria. Provincial towns like Salamiyya in Rama province and al-Raqqa along the Euphrates River, which had been largely ignored by state planners during the 1970s, blossomed almost overnight into vibrant centers of commerce and industry. [36]

In an attempt to give public sector companies the capacity to adapt more efficiently to shifts in the increasingly heterogeneous Syrian economy, state officials authorized managers of state-run enterprises to set plant policy without first consulting the authorities in Damascus. New guidelines issued in September 1994 stipulated that “relationships between these entities and other parties should now be on a commercial basis.” [37]

Economic liberalization in Syria, however, falls far short of wholesale deregulation. The state’s continuing role in local economic affairs is illustrated by the government’s reaction to the sudden collapse of a handful of unlicensed savings houses in the spring of 1994. These establishments had promised investors annual returns of up to 20 percent, a rate that even high-ranking state officials found impossible to resist. [38] The bankruptcy of several large investment houses at virtually the same time added urgency to private entrepreneurs’ requests that the government authorize the formation of private banks and a regulated stock exchange. Instead, the cabinet quickly drafted a law prohibiting unlicensed investment companies from soliciting deposits from the general public. The People’s Assembly ratified the statute in June. [39] Plans to set up an official stock exchange were then dusted off with considerable fanfare in the state-affiliated press, but were promptly turned over to an inter-ministerial committee for further consideration and sank without a trace. [40]

This line of argument highlights a pressing dilemma facing the regime. Should state officials persist in implementing policies designed to liberalize the economy which are also likely to fragment the national market? Or should they curtail economic deregulation, bringing into question “the regime’s commitment to free enterprise?” [41] Senior government officials, including President al-Asad himself, have devoted considerable energy to finding a way out of this dilemma, and continue to do so in overt collaboration with representatives of private capital. [42]

Synthesis

Both of these lines of argument broadly fit the facts of the Syrian case. But neither provides a totally compelling explanation for contemporary political-economic trends inside the country. Assuming that private capital and the state stand in fundamental conflict with one another makes it hard to distinguish among different kinds of capital. Furthermore, it overlooks the fact that state programs have not necessarily jeopardized private interests. Volker Perthes is quite right that a large number of small-scale manufacturers and tradespeople profited from the liberalization program of the 1970s and 1980s, even as state officials encouraged the expansion of large-scale private and public enterprises that undermined their position in the local market. [43]

On the other hand, assuming that large-scale private capital generally collaborates with the state leads one to expect a much greater degree of deregulation than has actually taken place. Having created the conditions in which private capital can flourish, it is surprising that government officials continue to allocate scarce resources to prop up increasingly inefficient public-sector financial institutions and industrial enterprises. Moreover, presuming a high degree of collaboration between private capital and the state tends to gloss over the ambiguous relationship between high-ranking military officers and party functionaries on one hand and large-scale private enterprise on the other, by implying that these ties are structured according to market principles. [44]

It is possible that a synthesis of the two perspectives could give us a better explanation for current trends than either one offers by itself. A more coherent account of Syrian economic liberalization might distinguish between a grand and a petty bourgeoisie and assert that the grand bourgeoisie generally collaborates with the state, while the petty bourgeoisie stands in conflict with it. Similarly, blending the two perspectives could provide the basis for a careful explication of the relationship between the military establishment and private enterprise. Such an exercise might well suggest a more satisfactory way of differentiating the activities of Syria’s pre-1963 bourgeoisie from those of newer entrepreneurs than the distinction between “primordial ties” and market principles.

It is even possible that one perspective is more useful for explaining what transpires at some times, whereas the other is more helpful for understanding other periods. Assuming a high level of collaboration between private capital and the state may, for instance, yield greater insight into the moment at which a regime initiates economic liberalization, while an account predicated upon inherent inter-sectoral conflict better explains the twists and turns that occur once deregulation gets underway. How to take advantage of the strengths of these two lines of argument, while avoiding their respective conceptual shortcomings, is the challenge that confronts further inquiry into class politics in the contemporary Arab world.

Author’s Note: The author would like to thank Kiren Chaudhry and Sami Zubaida for advice concerning the organization and argument of this essay.

Endnotes

[1] Hans Hopfinger and Marc Baeckler, “Step by Step to an Open Economic System: Syria Sets Course for Liberalization,” British Journal of Middle Eastern Studies 23 (November 1996); 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: British Academic Press, 1994).
[2] This section draws heavily on Fred H. Lawson, Why Syria Goes to War (Ithaca, NY: Cornell University Press, 1996), chapter 5.
[3] Volker Perthes, “The Syrian Private Industrial and Commercial Sectors and the State,” International Journal of Middle East Studies 24 (May 1992), pp. 212-213.
[4] Steven Heydemann, “Taxation without Representation,” in Ellis Goldberg, Resat Kasaba and Joel S. Migdal, eds., Rules and Rights in the Middle East (Seattle: University of Washington Press, 1993), pp. 89-90.
[5] Ibid., p. 92.
[6] Middle East Economic Digest, April 22, 1994.
[7] MEED, September 16, 1994 and February 9, 1996.
[8] MEED, November 17 and December 15, 1996.
[9] MEED, October 4, 1996.
[10] MEED, March 17, 1995 and November 1, 1996.
[11] MEED, August 30, 1995.
[12] MEED, September 1, 1995 and March 29, 1996.
[13] MEED, April 19, 1996.
[14] MEED, October 11, 1996.
[15] MEED, November 15, 1996.
[16] MEED, November 22, 1996.
[17] Kiren Aziz Chaudhry, “The Myths of the Market and the Common History of Late Developers,” Politics and Society 21 (September 1993).
[18] Kiren Aziz Chaudhry, “Economic Liberalization and the Lineages of the Rentier State,” Comparative Politics 27 (October 1994), pp. 256-257.
[19] Hanna Batatu, “Syria’s Muslim Brethren,” Middle East Report 110 (November-December 1982); Fred H. Lawson, “Social Bases for the Hama Revolt,” Middle East Report 110 (November-December 1982).
[20] Fred H. Lawson. “Comment le regime du president el-Assad s‘emploie a remodeler l’economie syrienne,” Le Monde Diplomatique (January 1984).
[21] Elisabeth Longuenesse, “Labor in Syria,” in Ellis Jay Goldberg, ed., The Social History of Labor in the Middle East (Boulder, CO: Westview Press, 1996), pp. 116-118; Longuenesse, “The Syrian Working Class Today,” Middle East Report 134 (July-August 1985).
[22] Longuenesse, “Labor in Syria,” p. 119.
[23] Raymond A. Hinnebusch, Peasant and Bureaucracy in Ba‘thist Syria (Boulder, CO: Westview Press, 1989); Hinnebusch, Authoritarian Power and State Formation in Ba’thist Syria (Boulder, CO: Westview Press, 1990).
[24] Chaudhry, “Economic Liberalization,” p. 7.
[25] Volker Perthes, “Syria’s Parliamentary Elections,” Middle East Report 174 (January-February 1992).
[26] MEED, August 26 and November 4, 1994 and September 8, 1995.
[27] Joseph Bahout, “The Syrian Business Community, Its Politics and Prospects,” in Kienle, Contemporary Syria, p. 74.
[28] Volker Perthes, The Political Economy of Syria Under Asad (London: I. B. Tauris, 1995), pp. 110-112.
[29] Perthes, “Syrian Private Commercial and Industrial Sectors,” p. 226.
[30] MEED, September 27, 1991.
[31] MEED, July 12, 1991.
[32] MEED, May 13, 1994.
[33] MEED, August 19, September 16, and October 7, 1994.
[34] Jocelyne Cornard, L’Entrepeneur et l’etat en Syrie (Paris: L’Harmattan, 1994), pp. 97-99.
[35] Ibid., pp. 103-114.
[36] Mohammed al-Dbiyat, “Les Mutations du Centre Commercial de Salamieh (Syrie) entre 1978 et 1989,” Les Cahiers d’URBAMA 5 (1991); Susanne Bauer et al, The Euphrates Development Scheme in Syria: Social Impact, Production Organization and Linkages (Berlin: German Development Institute, 1990).
[37] MEED, October 7 and November 18, 1994.
[38] MEED, May 20, November 18 and December 9, 1994 and October 13, 1995.
[39] MEED, June 24, 1994.
[40] MEED, July 8, 1994; Perthes, Political Economy of Syria, pp. 214-216.
[41] Chaudhry, “Economic Liberalization,” p . 20.
[42] MEED, February 11, 1994.
[43] Perthes, Political Economy of Syria, p. 129 note 66.
[44] See Elizabeth Picard, “Arab Military in Politics: From Revolutionary Plot to Authoritarian Regime,” in Giacomo Luciani, ed., The Arab State (Berkeley, CA: University of California Press, 1990); John Waterbury, “Twilight of the State Bourgeoisie,” International Journal of Middle East Studies 23 (November 1991).

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Fred H. Lawson "Private Capital and the State in Contemporary Syria," Middle East Report 203 ( ).
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