In the recent years, Syria has inhabited the two processes of fundamental transition. The first is a transition from a statist economy to a greater liberalization or, to use a more accurate term, intifah (open-door policy). The second of these transitions is from a state of belligerency with Israel to one of coexistence with the possible eventuality of peace. Although not organically linked, the two reinforce one another. The interplay among the dynamics both have created profoundly shapes state and society in Syria, as it has the politics of the Eastern Mediterranean.
Seven Lean Years
The 1980s began with Syria still embroiled in a low-intensity civil war with the Muslim Brothers. In Lebanon, Syria’s dominant position faced growing challenges from both Lebanese adversaries and Israel. At the same time, official assistance to Syria from Arab Gulf states (which had fueled the first infitah of the 1970s) began to drop as a result of reduced international demand for oil, as well as the desire of these states to signal their dissatisfaction with Syrian support for Iran in the war with Iraq. Iran’s concessionary oil shipments to Syria along with other forms of aid, while helpful, were not sufficient compensation for Syria’s losses. The impact of diminishing official resources, aggravated by a fall in worker remittances, was compounded by two years of drought which affected Syria’s most productive sector and led to an unprecedented foreign exchange crisis.  Only the flourishing “invisible” economy involving neighboring states, particularly Lebanon, which included the smuggling of contraband and the trade of illicit narcotics, kept the Syrian economy afloat. Syria’s second infitah was reluctantly initiated as a response to this severe economic crisis. 
Lacking a comprehensive program of reforms, the government reacted with a series of measures and laws — some of which were contradictory or of limited impact — intended to introduce gradual structural changes in an inefficient public sector, reduce reliance upon imports, promote exports and liberalize trade by increasing the role of the private sector in the economy. More important than the economic impact of these measures was the political-ideological thrust behind them: the state’s recognition that it must relinquish some sectoral monopolies and grant a larger economic space to the private sector.
The government, realizing that it could not ignore the demands of an emerging private bourgeoisie (many of its members the children of the privileged elite) and of the old Damascene merchant class for wider reforms and a greater role in setting economic policies, enacted a series of laws to accommodate these groups’ demands. In May 1991, Investment Law Number 10 was passed to encourage private Syrian and foreign investment in areas traditionally reserved for state monopolies.
The Pendulum Swings
After the lean years of the 1980s, four consecutive years of plenty (1990-1993) followed in which real GDP growth averaged 7-8 percent.  This period saw the slow dismantling of the public sector and the socialist measures associated with it. Private investment overtook public investment and, for the first time since the Baathist takeover, a mixed-sector company was established in the “strategic industry” of electricity production and private joint stock companies were formed. Today, agriculture is virtually the exclusive domain of the private sector and fertilizer and seed subsidies have been reduced. The country is moving in the direction of unified exchange rates, and there is talk of overhauling the archaic banking system and reopening the Damascus stock exchange.  Early in 1997, the government announced it was lifting all taxes on agricultural exports, thus allowing farmers to retain all their foreign exchange proceeds. 
Liberalization and Its Discontents
The improved performance by the Syrian economy was buttressed by the influx of assistance from Kuwait, Saudi Arabia and the United Arab Emirates in the wake of the 1991 Gulf crisis. This enhanced the ability of the Syrian leadership to confront formidable challenges: the collapse of the Soviet Union and the beginning of negotiations with Israel.
Domestic oil production crested at around 600,000 barrels per day in the early 1990s, generating between $1.6 and $2 billion a year. Syrian agriculture was booming, with bumper crops of wheat, cotton and citrus, contributing to a 7 percent increase in Syria’s GDP in 1992.  Aleppo, fast becoming the Syrian center for private-sector development, currently boasts over 27,000 industrial firms. 
Despite these growth rates, signs of stagnation began to appear in 1994. The trade deficit that year was estimated at $1 billion, and oil revenues and exploration activities had begun to recede. Falling international oil prices and a serious oil fire at Dayr al-Zawr dampened the prospects for that sector. The reduction of subsidies and rising world prices for key imports further slowed the economy. In addition, interruptions of electricity supplies slowed industrial growth. 
Many Syrian businessmen, seeking quick return on their money, invested in expensive real estate instead of labor-intensive industrial projects. Rather than following up on Investment Law 10 with more far-reaching reforms, the government opted for small moves, such as allowing businesses to own fax machines and install satellite dishes. The public sector is still the largest employer in Syria. Unless the government enacts some of the major reforms that have been under discussion for years (unifying exchange rates, reopening the stock market, authorizing the establishment of private banks and curbing the endemic corruption), Syria’s gains of the recent past will have been in vain. Without additional reforms, the economy will be overtaken by a population growth rate of more than 3.4 percent, one of the highest in the world.
Resistance to additional reforms on the part of some in the bureaucracy, the Baath Party and the military, widespread patronage, wasta (contacts) and corruption constitute serious obstacles to rational economic policies. Even in the still limited private sector, “The game is often fixed, with licenses doled out as favors to friends of the regime.” 
Advocates of economic reform value political stability in Syria; the hallmark of the Asad era. Few merchants or industrialists would call for full and immediate liberalization and privatization of the means of production, let alone political reforms. Furthermore, “All agree a Soviet-type collapse of the statist system before a market is in place must be avoided by gradual transition.”  The need to balance the interests of various and changing regime constituencies, and to avoid drastic measures, led President Hafiz al-Asad to give his conditional support to Muhammad al-‘Imadi, the minister of economy and foreign trade and a major force behind liberalization. It was reported that Asad told the minister that support would be forthcoming in the face of intensified opposition to al-‘Imadi’s reforms. Asad noted, however, that the minister cannot expect blanket support for all his measures. 
Addressing those who “blame us sometimes for being slow in procedures,” al-‘Imadi said that Syria should do its utmost to avoid “making mistakes or falling into quicksand from which many countries were not spared.”  Ratib Shallah, president of the Damascus Chamber of Commerce agrees. “Isn’t gradual change much better and more controllable?” he asks, noting that it provides “an excellent safety valve to make sure we do not fall into the trap of social upheaval and dislocation.” 
The Ceaseless Quest
Since he assumed power in 1970, Asad, along with consolidating his regime’s constituencies, has focused his considerable tactical skills on a limited and well-defined strategic objective: the containment of Israel. The Syrian leadership believes that after the 1967 war Israel became the region’s superpower. Any Israeli advances in the Levant, whether political, economic or strategic, would only be achieved at Syria’s expense. Syria’s defeat deepened Asad’s determination not only recover its lost territories, but to make Damascus an indispensable power in the defense of Arab rights. 
Syria’s remarkably consistent commitment to a peaceful resolution of the Arab-Israeli conflict dates back to the May 1974 disengagement agreement with Israel. This is true despite the fact that Damascus did not play a crucial role in the peace process from the time of that agreement until 1991, by design as well as by the force of circumstances.  Although Syria demonstrated greater flexibility, and modified its tactics to accommodate changing regional and international constellations, its fundamental objectives remained unaltered: the restoration of Arab rights and the preservation of Syria’s regional interests. In July 1991, Asad reluctantly accepted the US formula for a peace conference after making procedural concessions. 
In his long and, at times, stormy career, President Asad has embarked on a number of bold, risky and surprising moves. This was the case when he intervened in Lebanon in 1976 to contain the PLO and its allies, when he sided with Iran against Iraq in the 1980s and when he dispatched troops to Saudi Arabia to join the anti-Iraq coalition in 1990. These moves were initially controversial, opposed by some in the ruling coalition and by many Syrians. In each of the cases, Asad held lengthy sessions with Baath officials, senior officers and other influential elements in the Syrian power structure to explain his moves. He also addressed ordinary Syrians and Arabs throughout the region, in efforts beyond simple public rhetoric, seeking understanding and support.
Like Palestinians, Syrians see the struggle with Zionism in existential terms. Next to Palestine, Syria was the Arab society most affected and traumatized by the establishment of Israel in a part of bilad al-sham. Since the 1930s, the question of Palestine has been the defining factor in the political ethos of contemporary Syria. The Syrians saw the Zionist project as an obstacle to Arab unity, a threat to neighboring countries and a potential danger to their economy.  The Palestinian tragedy compounded the earlier loss of Alexandretta to Turkey and the incorporation of Syrian territories into Greater Lebanon. This legacy has shaped the political outlook of President Asad’s generation and still weighs heavily on its thinking.
There is broad agreement in Syria concerning the terms upon which peace with Israel should be predicated. When the Syrian leadership insists with confidence that there will be no peace unless Syria regains sovereignty over all of the area that Syria controlled on June 4, 1967, it reflects something of a Syrian consensus. This is further illustrated by Syria’s insistence on reciprocal security measures as well as the recognition of Syria’s vital interests in the Levant. Furthermore, no vision of peace exists without a parallel and total Israeli withdrawal from southern Lebanon. Even so, there is no such agreement among the pillars of the regime or in the general population concerning the scope of normalization of relations with Israel. Entrenched elements of the bureaucracy, the security services, the public sector, intellectuals and select members of other social strata will resist immediate normalization. On this question, the gradualist incremental approach will most likely be adopted.
As a realist steeped in the balance-of-power approach to international relations, Asad recognizes the uses and limits of ideology. He is driven not by ideological considerations but by raison d’etat. For him, the fact that Syria is in the heart of the Arab world and leads the efforts to check Israeli power establishes that Syrian interests are ipso facto the interests of the Arabs. Asad is very aware of his strategic predicament vis-a-vis Israel. He knows that Syria, lacking the demographic weight of Egypt and the material resources of Iraq, cannot lead the Arab world alone — hence, his ceaseless quest for coalitions, small or large. Asad’s obsession with containing the Israeli threat explains most of his domestic, regional and international moves. Asad’s awareness of the constraints, or the cruelty, of geography shapes his behavior.
The Shrinking Circle
Syria, like Israel, sees itself and Israel as the two major powers in the Levant. The other players, Lebanon, Jordan and the Palestinians, are weaker and will always be susceptible to pressure. Always the balancer, Asad is the only Arab leader who has sought to negotiate with Israel in the regional context and not merely to engage it in bilateral talks. Asad accepted the Madrid formula, thinking that his ability to function within two concentric regional circles would allow him to prevent the outcome he dreaded most — separate peace agreements. The wider circle contains the triangle of Damascus-Cairo-Riyadh, which extended Asad’s influence beyond Syria’s immediate environment. The smaller circle outlines Syria’s traditional domain in the Levant. The strategy failed when both the PLO and Jordan opted for separate deals with Israel. Syria’s inability or unwillingness to thwart these separate agreements is a function of the changing regional and international environment. Regardless, bolting from the peace process was not a viable option. Syria has already invested a great deal of political capital in the process, contrary to the claims of some of its critics. Furthermore, as long as Syria remains under the umbrella of the peace process, it will be difficult for its adversaries to treat it as a “rogue state.”
Syria views this defection of the PLO and Jordan as not only a compromise of its negotiating posture in the present, but a factor that will undermine its position in the post-peace era of economic, political and cultural competition between the two Levantine powers.  Syria’s vociferous rejection of the concept of a new Middle East based on economic integration, as proposed by Shimon Peres, reflects the bitter Syrian experience with Israel in Lebanon in the early 1980s when Israel’s economic advances there yielded subsequent gains in other Arab countries.
In the negotiations with Israel, Syria has been flexible on the modalities of a peace agreement, such as the timetable for withdrawal and security arrangements, but not on fundamentals, such as total withdrawal and sovereignty. Syria offered Israel “full peace for full withdrawal.”  The Israelis demanded full and immediate normalization. Although Asad stated that Syria “realizes that peace has its objective requirements [and] will comply with those objective requirements that may be agreed upon,”  he and his senior aides have warned repeatedly that a “warm” peace cannot be imposed from above.  At a time of slow and controlled economic liberalization in Syria, where it is hoped that such reforms would make the economy more immune to Israeli penetration, Israel’s talk of open markets and economic integration raises serious concerns among Syrian officials. Syria’s ambassador to Washington, Walid al-Mu‘allim, summarized these concerns when he asked, “And how can you integrate two economies when one has a per capita income of $900 per year and the other has a per capita income of $15,000 per year?”  This is a clear indication that progress in peace negotiations will increase the pressure on Damascus to accelerate economic reforms. Furthermore, while the Syrians have consistently shown diplomatic acumen in their negotiations with Israel, there are no indications that they are planning with the same precision to deal with the economic repercussions of peace.
Syrian policymakers, who have been grappling for some time, albeit on an ad hoc basis, with the economic requirements of peace, believe, not surprisingly, that they have to deal with this issue gradually and regionally. Here, Lebanon and its economic potential figure prominently. It is assumed in Damascus that Lebanon’s expertise in international banking and trade, its human resources, its traditions in education and access to information, if combined with the resources of Syria, would cushion the painful economic transition to a new era of competition.  In this view, Lebanon will remain central to the success of Syria’s regional policies in the future just as it was in the past. If formal peace is achieved, Syria will also try to induce Jordan (and any new Palestinian entity that mayor may not be associated with it) into greater economic cooperation, if only to prevent its domination by Israel. Since Israel will continue to throw around its considerable economic and military weight, the Levant in the post-peace era will likely become the arena of a new nonlethal struggle between Syria and Israel for the hearts, minds and pocketbooks of the Lebanese, Jordanians and Palestinians.
While the immediate focus of Syria is currently on the liberation of the Golan and southern Lebanon, Syria’s traditional support for Palestinian objectives will continue. This is not only in keeping with long-held “Arab” objectives, but also because the strategic interests of Syria as a nation-state will be served if Israel is pushed back to its pre-1967 borders.
Barring a governmental change in Israel, it is unlikely that the peace talks with Syria will resume any time soon. This is true given the Netanyahu government’s intransigent views on the Golan. In the meantime, the slow pace of government reforms will continue. In the absence of major reform initiatives, focus will be increasingly on containing corruption, including reining in the nephews of President Asad.  These campaigns are not designed to eradicate corruption, which is tolerated as a useful political and economic tool, but to prevent its extreme and embarrassing manifestations. Meanwhile, the reformers will continue their lobbying efforts, sometimes with a wink from powerful sources. Such was the case when Ilyas Najma, the Syrian ambassador to France, lambasted “the sons of corrupt” Syrian officials representing foreign companies, stating that they are interested “only in quick gains.” The ambassador also admitted that Law 10, while succeeding in attracting Syrian expatriate monies, failed to draw foreign investments. 
The Syrian leadership realizes that the continuation of economic reforms and the peace process will increase pressure for, and the expectation of, greater political openness. While conceding that this could lead to less government intrusion into the lives of the citizenry, some Syrian officials, citing the examples of China, Chile, Tunisia and Egypt, claim that economic liberalization can continue without a corresponding political liberalization. An alliance of a more assertive capital (old and new, including those created by the regime), skilled industrial labor, independent members in parliament, enlightened technocrats, intellectuals and others could play a greater role in decision making, thus diminishing somewhat the control of the state over civil society. While such developments would not necessarily lead to democratization, an anathema to the current regime, they could revive civil society and open the possibility for “the return of politics.” 
President Asad’s successor or successors, who will lack his strong influence and stature, will have very little choice other than to pursue the current policies toward economic refonn and the peace process. Much has been written about the succession question in Syria. Those who tend to exaggerate the persistence of primordial loyalties in Syria and the role of the ‘Alawis in the regime also tend to exaggerate the difficulties of succession. The disproportionate number of ‘Alawi officers in the armed forces and the security apparatus lends credence to the view that there is an ‘Alawi core to the instruments of coercion in Syria. Confessionalism, like patronage, wasta and corruption, is still exploited by the state. It would be misleading in the extreme, however, to extrapolate from this that the regime itself is ‘Alawi. If anything, the regime has shown that it has a Syrian Arab, as opposed to a sectarian, agenda. Moreover, the ‘Alawis are not politically monolithic and, contrary to widespread allegations, have not been treated by the state as a privileged community.  It is not a foregone conclusion that the death of the president will leave a vacuum and lead to a constitutional crisis resulting in a confrontation among powerful, military “barons.” President Asad has surrounded himself with a number of strong, experienced and trusted lieutenants. Some of them, such as First Vice President ‘Abd al-Halim Khaddam and Chief of Staff Hikmat al-Shihabi, can be relied upon to maintain domestic stability and to benefit from their extensive regional contacts. The military pillars of the regime, as well as its various key political and economic constituencies, have a vested interest in avoiding a repeat of the near-military confrontation between the president’s younger brother Rif‘at and his opponents which occurred in 1984 during Asad’s illness. The most likely scenario is a collective leadership presided over by a first among equals.
It remains to be seen whether or not President Asad will see peace with Israel and greater economic liberalization come to fruition. His commitment to the former is clear, as is his ambivalence toward the latter. Regardless, he leaves the successor regime with a legacy and a road map for peace as well as the domestic realignments and the basis for economic and possible political liberalization.
 For an incisive analysis of Syria’s first and second infitahs, see Volker Perthes, The Political Economy of Syria Under Asad (London: I. B. Tauris, 1995).
 Many studies of Syria’s economy in the 1980s predicted a bleak future for the country and underestimated its ability to pursue structural reform. For instance, see Elyahu Kanovsky, “What’s Behind Syria’s Current Economic Problems?” in Middle East Contemporary Survey, 1983-1984 (Tel Aviv: Tel Aviv University, 1986), pp. 280-347, and Patrick Clawson, Unaffordable Ambitions: Syria’s Military Build-Up and Economic Crisis (Washington, DC: Washington lnstitute for Near East Policy, 1989).
 Embassy of the United States of America, The 1996 Country Commercial Guide (Damascus, 1996).
 Perthes, The Political Economy of Syria and 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 (New York: St. Martin’s Press, 1994).
 Al-Sharq al-Awsat, February 7, 1997.
 New York Times, November 6, 1994.
 Embassy of the United States of America, The 1996 Country Commercial Guide.
 Syrian Arab Republic, Statistical Abstract (Damascus, 1996).
 Washington Post, October 9, 1994.
 Raymond A. Hinnebusch, “The Political Economy of Economic Liberalization in Syria,” International Journal of Middle East Studies 27 (1995).
 This article is based in part on interviews with senior Syrian officials conducted over the last four years in Damascus and Washington.
 Muhammad al-‘Imadi, Syria’s Experience in Trade Liberalization and Policies of Economic Reform (Damascus, August 1994).
 Quoted in the Washington Post, October 9, 1994.
 Patrick Seale, Asad: The Struggle for the Middle East (Berkeley, CA: University of California Press, 1989).
 Muhammad Muslih, “Asad Is Ready,” Foreign Policy 96 (Fall 1994).
 Alasdair Drysdale and Raymond E. Hinnebusch, Syria and the Middle East Peace Process (New York: Council on Foreign Relations Press, 1991).
 Philip S. Khoury, Syria and the French Mandate: The Politics of Arab Nationalism, 1920-1945 (Princeton, NJ: Princeton University Press, 1987).
 Author’s interview.
 New York Times, May 11, 1993.
 Tishrin, September 11, 1994.
 Raymond E. Hinnebusch, “Does Syria Want Peace?” Journal of Palestine Studies (Autumn 1996).
 Interview with Walid al-Mu‘allim, Journal of Palestine Studies (Winter 1997).
 Author’s interview.
 New York Times, January 28, 1997.
 Al-Sharq al-Awsat, January 30, 1997.
 Eberhard Kienle, “The Return of Politics? Scenarios for Syria’s Second Infitah” in Contemporary Syria.
 Perthes, The Political Economy of Syria Under Asad.