Sharks and Dinosaurs: State-Business Relations in Syria
BY BASSAM HADDAD
The state’s relationship with business communities can provide both detrimental and beneficial economic outcomes. One factor that impinges on successful development can be the state-business nexus. Is such underdevelopment a function of certain cultures? A study of how state and business actors come together in informal economic networks and shape patterns of state intervention, including economic and institutional change, helps address this question. The implications of the answer for levels of development should not be underestimated. Syria, a country with a population of 20 million and whose state revenue derives primarily from agriculture and oil exports offers interesting anecdotes. Syria is ruled by what is best deemed a populist-authoritarian regime led by the socialist-nationalist Ba`th party since 1963 and by the Asad family since 1970.
In the 1950s, Egypt and South Korea were on the same economic footing, both in the nature of their respective economies and as measured by indices such as GDP, manufacturing output and number of educational institutions. By the 1980s, South Korea had achieved remarkable economic and developmental growth while Egypt was mired in economic troubles. South Korea’s efficient factories were producing for the global market, while Egypt’s state-owned enterprises were sinking into squalor.
The comparison is stark and cannot be fully explained by exogenous factors like the pumping of Western dollars into South Korea during the Cold War and the Arab-Israeli wars. While these important international variables explain some of the gaps (particularly the availability of capital) they do not account for the differences in economic policy-making and domestic allocation of resources. What produced these different developmental outcomes from essentially similar starting points? Syria proves to be a useful comparative case study and is largely understudied.
Syria is similar to Egypt in terms of economic structure, culture, and colonial history; however it did not switch alliances between the USSR and the US during the cold war era as did Egypt in 1974. Furthermore, Syria’s economic policy-making was not influenced by either Western countries or by international financial institutions like the World Bank or the International Monetary Fund. Thus, one cannot attribute deteriorating economic and developmental conditions in Syria to external or neo-liberal influences, making Syria a laboratory case par excellence. Its economic policies are homegrown. Even Syria’s confrontations with Israel in 1967, 1973 and 1982 did not impinge on these policies. Quite the contrary, the conflict was instrumental to justifications for the regime’s preference for a state-centered economy.
In the Syrian case, informal economic networks comprised of state officials (often referred to as “dinosaurs” in Syria) and big businessmen (often referred to as “sharks”) hijacked the process of economic liberalization in the 1980s and 1990s. Government officials and business leaders proceeded to enrich themselves through rent seeking at the expense of the average Syrian consumer, the health of the economy and the mediumterm developmental potential of Syria. The structural context in which this takes place is conditioned by two main factors: a legacy of social mistrust between the regime and the business community (where the regime is made up largely of rural minorities and the business community is largely urban and Sunni) and the continuous inflow of external rent from oil and aid (rent is a form of income that does not derive from productive activity). A third factor is conspicuous by its absence. There has been little influence upon economic policy-making from external and domestic institutions and social forces including international financial institutions, the political opposition, an independent judiciary and the media.
The legacy of mistrust prevented the state from formally incorporating the business community, while rent income allowed the state to compensate for its egregious economic failures and postpone breakdowns. In most successful East Asian economies, a version of “embedded autonomy” was the state-business model: this is a form of state-business collusion that provides incentives for the business community without undermining the unity, coherence and legal-rational aspects of the state’s economic bureaucracy. The embedded autonomy model was not a viable option in Syria because its economic logic contradicted the regime’s political rationality.
The case of Syria is best framed as a causal narrative starting with historical factors that give rise to state-business networks and ending with the influence of these networks on economic and institutional change. Historically, the business community and the economy as a whole were dominated by the urban Sunni bourgeoisie. This formula changed dramatically under the United Arab Republic that combined Syria and Egypt for a brief stint from 1958-1961 and even more so when the Ba`th came to power in 1963. The new regime marginalized the Sunni business community in favor of socialist development of sorts. The emerging Ba`thist leadership followed a rather strict ideological line in implementing land reforms and nationalization of private assets, without much regard to domestic political factors and regional politics. The result was the increasing isolation of the regime both domestically and internationally.
When Asad senior came to power in 1970, he established détente with the Sunni business community but brought business in through the back door so as to keep it divided and politically weak, leading to the emergence of informal relations between the state and the business community [see Figure 1]. The regime needed to empower itself through a selective revitalization of the private sector that would keep it, as a whole, in check. An important official at the Ministry of Industry in Syria confidentially offered:
It’s true, this regime helped the private sector grow, but it will never tolerate a strong private sector. I am under your control when I am a twig in your hand, but not when I become a palm tree.
The informal state-business economic networks that began to form in the 1970s matured in the 1980s. These networks proceeded to dominate economic policy-making as Syria began to liberalize its economy in 1986 and more formally so after the collapse of the Soviet Union in 1991. The case of the Syrian state-business networks have been studied through empirical research, allowing for comparative analysis based on other similarly structured networks.
Study of state-business relations in Syria provides a valuable set of empirical and conceptual findings. First, research points to the complexity and ambiguity in the concept of the private sector in Syria, where the plurality of private assets are owned or controlled, not by the state but by state officials. This fact alone renders irrelevant a substantial segment of the literature on economic reforms. Another empirical finding is that the legacy of mistrust persists and has shaped the strategies of both the regime and business actors even when they are partners. It persists because of patterns of recruitment and promotion that reinforce the social divide between the regime and the business community. Finally, analysis reveals that economic liberalization in Syria has essentially reproduced the winners from prior arrangements as a strategy of maintaining a quantitative edge in terms of capital vis-a-vis potential opposition. The new winners remain divided and on the margins. New opportunities that emerged since 1986 have reflected the interests of entrenched economic networks [See Figure 2].
Conceptually and methodologically, research on Syria offers several important findings:
- The importance of network analysis, particularly regarding the question of agency.
- The implications of trust for institutional and economic development.
- The synthesis of these areas opens a door to research that combine economic sociology with historical and even rational choice institutionalism.
Networks constitute an alternative way to conceptualize agency, one that combines the individual level of analysis with the structural level of class and culture. Network analysis does so by synthesizing individual preferences with structural constraints. The preferences of economic actors within networks, for instance, are also conditioned by structural factors in which the networks are embedded. Sunni businessmen pursuing the rational choice of making profits can have regime officials as partners within economic networks. The dynamic of partnership is conditioned by larger structural factors, but they remain partners. The explanatory value of network analysis is reflected in three kinds of outcomes:
- Unlikely partners (alliances cutting across class, status, religion, and economic sectors);
- Ambiguous institutional formulas of bargaining and compromise (institutions not serving their official purpose or representing their intended constituency); and
- Unintended outcomes (outcomes not intended by a singular component within the networks).
Network analysis provides insight into seeming contradictions and counter-intuitive formulas. While most available literature focuses on the effect of institutions on trust among the actors involved, Syria provides a case study that tells us what happens when mistrust informs institutional development. The question of trust has been dominated by analysts who emphasize its political cultural, rather than its strategic, dimensions. A rational choice new institutionalism approach explains the unintended institutional and economic outcomes of mistrust between the regime and the larger business community.
The exclusionary networks that form are conditioned by this mistrust and produce what is called calculative trust, or put simply, short term trust. This short term trust between regime officials and select business actors produces two outcomes: (1) tailored economic policies that help bring the economy to a halt and (2) empowered private sector partners (through rent seeking).
As a result, the ‘regime as a regime’ (not a constellation of individuals) is faced with prolonged economic downturns and institutional gridlock. Finally, establishing the links between trust, networks, and institutions (or between economic sociology and the new institutionalism) can be traced through: Mistrust – Networks – Exclusionary Institutions – Economic Policies.
Although the broader regime-business mistrust conditions this process-tracing, economic networks seem to develop a life and a dynamic of their own, making these networks an object of study unto themselves. Constraints to further developing process tracing techniques in Syria are gradually diminishing, but by no means have they disappeared. In order to maximize the import of network analysis and its implications for economic and developmental outcomes in Syria, researchers would have to wait for a little while longer.
When one speaks to close observers of these networks, one of three grand scenarios emerge: either the dinosaurs (aging regime officials) will be outdone by the sharks (big business), many of whom are the siblings and offspring of the dinosaurs who decided to go into “private” business, or vice versa. The former scenario speaks of a neo-liberal future for Syria, with a tinge of conservative Sunni Islam politics. The latter is a regime survival scenario in which Syria’s current secular authoritarian regime renews itself by creating a subordinate business community in its own image. Alas, it seems that the most optimistic scenario that might restore Syria’s economic vitality consists in deeper connections between sharks and dinosaurs, whereby a more homogeneous and younger class emerges and develops an interest in the rule of law to protect its “privilege” legally. In all cases, the future for the average Syrian citizen is not quite bright.
Bassam Haddad (bhaddad@gmu.edu) teaches in the department of Public & International Affairs (http://pia.gmu.edu) and is playing the lead role in developing a new multidisciplinary Middle East Studies program for the university. This article was first published in print and citations have been removed due to space limitations, but are available from the author.
