Azmeh and Zubaida Join the Neolibralism Debate.

Posted by Joshua on Monday, November 16th, 2009

Neo-liberalism in Syria: Long live the TINA Argument
By Shamel Azmeh (See his Blog)

Margaret Thatcher used to challenge her critics by employing what became known as the TINA argument (There is no alternative). Following her example, and for about two decades, neo-liberals, using their influence in governments, media, and academic institutions, managed to convince the world that TINA is a valid argument and that unless you provide an alternative policy, you are not entitled to criticize the dominant political and economic paradigm.

Luckily, the TINA argument has been discredited in most countries and people across the world have become aware that there are always alternatives and that the issue is not the existence of these alternatives but, rather, the balance of interests in a certain country that allows some alternatives to become dominant and unchallengeable.

Probably one of the few places where the TINA argument is still considered a valid argument is Syria. It is very normal in Syria to hear economists and officials using the TINA argument to corner their critics and to discredit their opinions just as Ehsani tried to do with Dahi’s comment. Let me be very clear here. The TINA argument is totally unacceptable. When someone is in a policy-making position, he/she is in charge of designing policies and people are totally entitled to criticize these policies even without providing alternatives. And if the policies in place are not working and if the policy-maker is unable to come up with alternative policies, he/she should step down and let other people try to develop such policies. The job of the policy-maker/researcher/commentator is not to suggest a certain policy because he/she thinks that there are no alternatives but to show us why and how the strategy he/she is suggesting is superior to other alternatives.

Now, and more into the topic of discussion, Ehsani is suggesting what Dahi rightly calls a typical neo-liberal prescription. The idea here is that all problems are created by government intervention in the market and that if we deregulate and liberalize the economy internally and externally, the market will magically produce the most efficient allocation of resources and economic growth will follow.

Now, in short, this theory is as outdated as it gets. Some of the most prominent economists in the world including Paul Krugman, Joseph Stiglitz, Ha-Joon Chang, Dani Rodrik and others have made it perfectly clear that this is far too simplistic to capture the reality and how “the economy” functions and particularly in the case of developing country’s economies. These economists also explained how this theory is not only flawed empirically, judging by the results of the World Bank’s Structural Adjustments Programs (SAP), but it is also flawed theoretically as the theoretical underpinnings of it are highly simplistic.

A nice summary of this transition in economic thinking can be found in the following excerpt from Harvard’s prominent economists Dani Rodrik: “Once upon a time, economists believed the developing world was full of market failures, and the only way in which poor countries could escape from their poverty traps was through forceful government interventions. Then there came a time when economists started to believe government failure was by far the bigger evil, and that the best thing that government could do was to give up any pretense of steering the economy. Reality has not been kind to either set of expectations. Import substitution, planning, and state ownership did produce some successes, but where they got entrenched and ossified over time, they led to colossal failures and crises. Economic liberalization and opening up benefited export activities, financial interests, and skilled workers, but more often than not, they resulted in economy-wide growth rates (in labor and total factor productivity) that fell far short of those experienced under the bad old policies of the past”.

It seems to me that Ehsani is still at the second stage; the stage when people thought that government failures is the biggest evil of all and that deregulation, liberalization, and privatization are the magical solutions to these failures. Ehsani is not only putting forward the same argument but also using the exact same terms that prevailed in economic literature at this stage. Examples include the idea that the “reform” process is difficult and painful (this is the nice way of saying that millions of people will lose their jobs and go into poverty and that consumer prices will soar so that a large part of the population will not be able to afford their food) but the results will come at the end. And the argument that if there are difficulties on the road, the reason is the reluctance of the “reformers” and the medicine should be more of the same (the example of the car is heartened by neo-liberals in this regard). Reflecting on this kind of arguments in regard to free trade, Stiglitz argues that according to neo-liberal economists, when the economy is liberalized, the resource will move from low-productivity activities to high-productivity activities. In most countries however, Stiglitz says, what has actually happened is that resources moved from low productivity activities to zero productivity (i.e. unemployment). Of course, the neo-liberals will respond to this argument by analysing that the labour market is not de-regulated enough and that the solution is to implement more reforms regardless of the disastrous results of the current policies.

Ehsani uses the example of Brazil to argue his point (although I am not sure if citing a country with a socialist president who thinks Chavez is the best president Venezuela had in the last 100 years is a point for or against neo-liberalism). To me, the best example is not Brazil but Asia which is rising today to become a huge economic power. The “Asian tigers” have achieved the fastest technological and economic upgrading in history and their story does not fit nicely with the neo-liberal model. Probably with the exception of Hong Kong, not a single Asian country has adopted the laissez faire economic strategy neo-liberals would have us to believe. In Japan, South Korea, Taiwan, Singapore, Malaysia, and China, the government have been highly involved in directing the economy and in allocating resources using all means possible such as active industrial policy, active trade policy, state ownership of enterprises, etc. The examples here are numerous. I can think about the story of the Taiwanese IT industry. Taiwan today is one of the biggest centres of the IT industry producing more than 50% of the laptops that are sold across the world. The Taiwanese government played a crucial role in developing this industry. It first identified the industry as a strategic sector to support (an intervention with the market allocation of resources!!) and it invested directly in the industry while at the same time encouraging local entrepreneurs and foreign investors to take part in the process. A number of Taiwanese public and quasi-public organizations such as the Industrial Technology Research Institute (ITRI) were established to help upgrade the industry and diffuse the needed knowledge. These organizations have played a crucial role in transforming Taiwan from a low-wage assembly platform into a technologically advanced centre of innovation. The stories of South Korea shipbuilding and steel industries are also illustrative in this regard.

These stories should not, however, be surprising as historically government support has been crucial in building industrial and technological capabilities. Cambridge economist Ha-Joon Chang uses the story of Toyota as an example. When Toyota started to produce cars, encouraged by a monopoly of the local market and a range of subsidies by the government, most free trade economists in Japan were highly sceptical.  Japan comparative advantage is in silk, they believed, and it will be impossible for Japan to compete in the automobile industry. After decades of protection and support, Toyota exported the first car to the US. This proved to be a huge failure to the degree that Toyota had to withdraw the cars from the US market. The free trade economists said: We told you from the beginning. Japan will never be able to compete in this industry and it is now time to focus on our comparative advantage and forget about cars and leave it to the market to decide what we should produce. Luckily for Japan, the government decided to continue with the effort to promote the automobile industry and Toyota is considered today one of the most efficient automobile producer in the world.

I think my point is clear. Economic development is essentially a process in which countries move from low-value added activities and sectors to high-value added ones. While it is possible for this process to take place through the market mechanism, history shows us that a number of market failures prevent this and require an external role to facilitate this process. This role may take different forms. The most successful way has been a strategy that incorporates the important role of the market with a set of interventionist tools (industrial policy, trade policy, state ownership, etc) to steer the market in the right direction.

What Syria needs is such a strategy; A strategy that focuses on achieving results and not on adhering to certain ideologically-driven theories whether these are the state-led development theories or, the equally ideologically-driven, neo-liberal theories. To develop such a theory, we need people who understand how the economy really works and who are capable of understanding the lessons from other countries. But, before that, we need people who believe that there is always an alternative.

* Shamel Azmeh, MSc Globalization and Development,
PhD CandidateInstitute of Development and Policy Management
University of Manchester

___ End

Some Historical Context

by Zubaida (An economist who reports for a leading economic intelligence outfit.)

May I throw some empirical and historical context into this debate, which has been cast as being between neo-liberal and statist models of development. The roots of Syria’s state sector were laid down during the UAR period, during which Syria had the misfortune to fall under the most doctrinaire phase of Nasserist state socialism. Nasser backtracked as early as 1968, and Sadat started the very slow process of rolling back the state’s domination of the Egyptian economy in 1974. The state sector is still a powerful part of the Egyptian economy to this day, but the contribution of Egyptian and foreign private investment to the relatively rapid growth in production of goods and services in recent years has been of critical importance. I would argue that Egypt would be in much worse shape today without the reforms that have been enacted over the past 35 years, and in particular in the mid-1980s, mid-1990s and since 2004.

Syria’s recovery from its damaging encounter with Nasserism has been much more limited, although the successive Assad regimes have shown little ideological affinity with state socalism. Hafez al-Assad made accommodations with Syrian merchant families in the 1970s and 1980s, and kicked off his own version of “open door” policy in 1991 with Law 10. Hafez al-Assad also recognised that the Barcelona process, under which the EU Association Agreements fall, provided a means for his government to sketch out an economic reform programme with the help of European finance and technical assistance. The decision to allow the establishment of private banks and a stock exchange was taken towards the end of Assad senior’s rule, and this has resulted in the rapid expansion of Syria’ financial services industry over the past few years.

It is thus nothing new for the Syrian government to recognise the validity of some neo-liberal ideas. The difficulty has been the hesitancy with which reform has been pursued. This can be ascribed to various factors: politically generated finance from Arab states, Iran and (in the form of weapons effectively free of charge) the Soviet Union, which alleviated the pressure for reform; vested interests in the state and Baath party that were resistant to reform; rent-seeking behaviour from privileged economic elites closely connected to the centres of power.

The Bashar al-Assad government has made some limited progress towards creating the conditions for the Syrian private sector to become an effective engine for sustainable growth and job creation. It is likely to continue to try to build on these achievements through further gradual steps. Ehsani and his supporters are right to be concerned that this is all far too little too late.

Omar Dahi Replies: (Addendum Nov. 15 2009)

Friends,

Thank you all for a very interesting discussion. I will try not to repeat myself and to focus on the substantive issues raised by Ehsani’s reply. I apologize for not joining in earlier, but from reading the comments made here I can see several interesting and valuable interventions by others. I’ll try not to repeat those either and I apologize if this comes off as written in haste because it is:

  1. “The sad news is that he offered no real solutions.” This is perhaps legitimate, although I think I make the case for an industrial policy. Having said that, this is a case of the pot calling the kettle black. As Carlos-Diaz Alejandro famously said, neoliberalism is not a development model, it’s the negation of a model.
  2. “If Mr. Dahi is right that “most” of us would want just such a job (I know that I do), we must find a sucker that is willing to pay for our risk-free salaries and benefits and also our retirement.” I’m baffled by this comment. First, I am glad that Ehsani agrees with me that most people do not want to be entrepreneurs. However, I am not sure why he sees wage-labor as equivalent to sinecue. Moreover I did not argue that everyone should be employed by the state. I have to say I do not get this critique: all of capitalist industrial development was based on wage-labor; were all those employers suckers? Or perhaps you see all those workers are insignificant: it’s the bosses who produce, not the workers. If that’s the case our disagreement may be bigger than I thought.
  3. “He, of course, conveniently forgets to talk about where these countries are today precisely because they followed and stuck to those “neoliberal” policies. Brazil.” This statement by Ehsani is supported by everything except the empirical and historical evidence (that I already cited some and won’t repeat). My comment and the literature I referenced shows that the precise opposite of what Ehsani is arguing. I just returned recently from the Southern Cone where I spent the months of June through August researching the Southern Common Market (Mercosur). Argentina and Brazil (along with Paraguay and Uruguay) signed this agreement in 1991 and the gap between them since has skyrocketed. If i was to identify one major difference between the two it’s that Brazil remained committed to a national industrial policy. I happen to have interviewed a wide spectrum of people in Argentina and even the most committed neo-liberals (someone who was still calling for a NAFTA style agreement for all of of the Western Hemisphere) acknowledged as such. Studies of Brazilian industrial development and state support can be found in some of the literature I cite including Amsden. Peter Evans has written a lot about this. See his articles. His book Embedded Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University Press, 1995) is a must read on state-firm relations.
  4. “Hugo Chavez has squandered his country’s…My thoughts on this experiment were detailed in a dedicated post here on this forum” I read through Ehsani’s post which he links to and along with his reply to my statement there has not been one single reference to an academic study, refereed journal article, or multinational institution publication. So let me do it on his behalf: Francisco Rodriguez makes the arguments Ehsani is echoing (against Chavez) in many articles (one example is here:). While Mark Weisbrot of CEPR argues the opposite, readers can read through Rodriguez and Weisbrots various articles on this subject and come to their own conclusion. Unlike Ehsani, I won’t refer you to “my thoughts.”
  5. Finally, to avoid any confusion, I didn’t make any arguments that there is no role for the private sector, or that the state should own all industries, etc. Most of the states I refer to as success stories could be described as having undergone state-led capitalist development. However the lines between the public and private sector were rather blurry. The point is that there was a serious commitment to industrial policy.
  6. Ehsani makes other points on the need for job creation, etc. etc. To risk repitition and try to simplify the main argument: Ehsani’s prescriptions will not get us to where he wants us to go,they will lead us to a situation even worse then we are now.

Best, Omar

___ End

Ehsani Replies: (Addendum, Nov. 16, 2009)

Mr. Azmeh introduces the interesting catchy phrase of TINA but he gets confused with its application.

He makes it sound like my proposals are Syrian policy and that Mr. Dahi’s opinions are being cornered and discredited. This is laughable.

Mr. Dahi wants to preserve the status quo. He and his supporters are trying to convince us that there is no alternative (TINA). I am the one who is saying, “yes there are alternatives.” Speaking of privatization has long been considered a taboo subject in Syria. Mr. Dahi wants it to remain that way by arguing that there is no alternative to what we have. It is remarkable to read how Mr. Azmeh misapplies a concept that he picked up from the Thatcher days and ends up arguing in favor of an argument he is trying to ridicule.

Both Mr. Dahi and Mr. Azmeh are yet to explain why their solutions have not worked in Syria. They point to fancy academic articles and point us to examples from Asia to Bolivia and Venezuela. They conveniently gloss over the subject at hand; the Syrian experience.

State-led intervention in the economy has been around for four decades. Protectionism has been around for as long. Attempts to make the private sector partner with the public sector have been around for just as long. What have the results been? I don’t need to bore the readers with my list.

Mr. Dahi concluded his comment from the previous post by saying:

“Ehsani’s prescriptions will not get us to where he wants us to go,they will lead us to a situation even worse then we are now.”

I don’t think I could do that even if I tried.

Mr. Dahi continues to cite the need for “industrial policy”. I would appreciate it if he could explain in layman terms what he means by that from a Syrian perspective. What specifically does this mean? And how can this recommendation be financed and implemented in today’s Syria?

Zubaida makes a number of very interesting observations drawing our attention to how this movie got its beginning during Nasser’s UAR.

As to the power projects, I am sure that the Syrian government would have jumped at the chance to borrow at 3% from the institutions listed above. My guess is that the funding was not there. The Cham holding deal (yet to be finalized) involved loans from the local private banks to the tune of $100 mm while Cham holding puts up the other $100 mm. Incidentally, the recent law to increase the capital of the local private banks is precisely to enable them to make such project finance loans; their current balance sheets are too small to allow them to participate in such projects.

__ End

Shamel Azmeh Replies:

I am quite surprised with the response from Ehsani on my comment. I am not sure if he read the comment or he just grouped me with the “state-led development” supporters and conveniently used the same arguments that he uses against this camp despite that what I was saying is significantly different from what classical state-led development scholars argue for (and as argued by Rodrik, few economists still believe that the old theories of state-led development can be successful in today’s world).

I am not arguing for a return to blanket protectionism and state-ownership of business enterprises. What I am arguing for, as is clear in my comment, is a mixed strategy that understands the role of the market and the private sector but also understands that to achieve upgrading and a shift from low value added activities to technology-intensive high-value added activities, a steering role of the state using active industrial and trade policy is needed.

He is saying that what I am saying has been tried in Syria and failed. This is laughable because the economic strategy in Syria over the last few decades has moved from a classical state-led development theory that views protectionism and state-ownership of firms as an end rather than a tool to an end (which is the transformation of the economy and the move into technology-intensive sectors) to a theory of a passive role of the state in which the state is only required to maintain the regulatory framework in which the economy functions (it doesn’t matter if there are some enterprises that are still owned by the state because the basic issue here is not the ownership of some enterprise but the active or passive role of the state regarding the process of upgrading and structural change). So, the strategy I am arguing for (and which was implemented successfully in the Asian countries) was never implemented in Syria.

Now, Ehsani is asking Dahi to explain what industrial policy is. Of course, it is beyond the scope of a comment here to explain this but I can refer him to the following papers to see what industrial policy is and how it can be used to promote economic development. Many of these policies can be used in Syria and it is always possible to invent creative policies at a general and a sectoral level.

Dani Rodrik “Industrial Policy for the twenty-first Century”

Sanjaya Lall “Reinventing Industrial Strategy: The Role of Government Policy in Building Industrial Competitiveness”

Hope that I won’t be “accused” of using “fancy academic articles”!!!

___ End

[ Landis comment] It should be added that the entire comment section stimulated by the Dahi-Ehsani debate on the last post is excellent. I should really publish a broad selection of the many thoughtful comments. I recommend everyone read them. I cannot thank SC readers enough for being so smart and interesting. It does Syria a great service.

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Comments (24)


EHSANI2 said:

“What Syria needs is such a strategy; A strategy that focuses on achieving results”.

Amen to that.

The “result” the country ought to strive for is fast economic growth that can employ people and pay them a decent wage. I don’t care if you were able to achieve that via neoliberalism, state-led socialism or even communism. We are not talking about titles. The neoliberal title was offered to me by Mr. Dahi.

I still stick to the view that free markets and the private sector do a better job at promoting economic growth. You can call that what you like. The alternative has been tried. The results are all there to see. I don’t think anyone needs me to bore them with a detailed reminder again.

November 16th, 2009, 3:17 am

 

norman said:

I think the Syrian government will be wise to use this time when wages are low to build the infrastructure of Syria ,

November 16th, 2009, 4:18 am

 

why-discuss said:

Norman

… and similarly to Taiwan, identify the areas where success is possible considering the present skills and present embryonic industries: pharmaceutical, tourism (religious or cultural), medical, agriculture, sweets factories and any others. That would be a first step to channel foreign investments and develop skills in these areas.

November 16th, 2009, 5:32 am

 

jad said:

WD,
I agree with you, I believe the Syrian pharmaceutical industry is doing great.
May I add couple industries to your list that I think are going to be great opportunity for Syria:
-Green Industries e.g. producing recyclable-nontoxic solar panels, they are a rear find and the market is asking for them, it’s a very hot industry and our region is in demand for such field.
-Recycled material’s industry, (using the salvaged materials in producing new ones to be used in building industry and market those materials worldwide, we should not go into electronics recycling, it is soil toxic and have health issue on people working in that industry)
-Organic food (we are already a leading country in producing organic vegetables and sell it to Europe, we can do better)

November 16th, 2009, 6:03 am

 

offended said:

Perhaps the commentary is getting a little too academic for my taste. But I thought I’d still chime in with my two pennies worth:

– Shamel is probably misusing the TINA reference. The thing is, what Ehsani is suggesting has largely not been put into practice, (or has it?) so it’s fair for Ehsani or anybody else to suggest alternatives to the specific problem he keeps highlighting: namely that government-owned businesses has been in the red for god knows how long.
– On the other hand, there is no clear and proven correlation between these businesses being owned by the government and them losing money. Have we exhausted all channels or trying to reform them? And yes, reforms will be painful. Restructuring will be needed. The culture of dependency must be curtailed. Pay for government employees must correspond to productivity.
– With regards to entrepreneurship: I feel that conditions for nurturing and nourishing entrepreneurs in Syria are very poor. Just where are the entrepreneurs? In Jordan, for instance; among those young business owners whose start up capital had been raised through bank loans, there will at least be 6-7 new millionaires every year. Do we have the equivalence of that in Syria? I doubt it.

November 16th, 2009, 7:52 am

 

Nicolas92200 said:

Hi Ehsani,

For clarity – my understanding is that in regards to the current power projects the majority is still being funded by the government, the IPP program is a parallel track not an alternative.

The funds for the power projects are being provided by the government from 2 main sources: its own budget allocations/revenue (my understandings that the MoElectricity has the largest budget this year), and also from the regional funds, including the Kuwait based Arab Development Fund. Their intention to set up the IPP is to bring on the private sector to play a role in the development. Cham has not been awarded the project (not yet at least and not ever if it were up to me to decided).

As a comparison, a government official in Egypt responsible for their power development plan recently told that they initially considered the IPP route then realize they are being provided with cheap debt by the Arab Fund, the Islamic Bank and the European Investment Bank, so they scrapped the new plans and went on developing the power plants themselves. The IPP is now to focus on renewable energy (starting with a wind project currently on the table). Should Syria get access to similar money (maybe it does already), this may not be a bad strategy after all. The cost of the LTD they are being offered is circa 3% all-in, compare this to the cost of equity the government has to payback to investors in IPPs. For the sake of clarity, I am not advocating dumping the IPP program in Syria, far from that, all I want to note is that I think it seriously needs to be further developed, but has to be well focused to achieve the best for the country, not to be done just for the sake of it being done.

In regards to the fund, the cash as I understood is to come either from deposits with state banks (currently idle as no investment venues) or through a sovereign bond to be issued on the local public; thereby channeling savings into the development fund rather than into real estate only.

This could be a neat way of getting the non-performing entities off the back of the government without getting too much pain from the old-guard who still chant against privatization (hence the word “accusation” in my previous comment), all while refocusing on the sectors of most national interest…out of the box thinking..why not??

November 16th, 2009, 10:56 am

 

Zubaida said:

Further to the well-informed comments by Nicolas on the IPP option for power generation in Syria: he is correct to say that Egypt re-evaluated its power options after its initial experiences with IPPs; the main problem arose because the tariffs in these contracts were dollar-denominated, and the government lost out when the Egyptian pound depreciated. The new wind IPP will have a mixed-currency tariff.

Syria’s first IPP looks problematical. The government got some bids in earlier this year from various local and Arab investors, and then asked the IFC to help in drawing up specifications and terms of reference. The project is on hold until these have been completed. There will be more tricky issues to deal with further down the line: how will the fuel supply agreement be guaranteed; who will guarantee the power purchase agreement; where will the bank finance come from? As it stands the IPP looks rather like a project designed to give monopolistic local investors a foothold in the power sector. On balance, it would seem more advisable for the government to continue to seek finance from the EIB and Arab development agencies for its power projects, while putting effort into creating a viable regulatory and financial framework for private power in the future.

November 16th, 2009, 12:04 pm

 

love you alex said:

Ehsani is miss understood. People arguing against him are accusing him of “laissez faire economics”. Ehsani is not. What he is arguing for are reforms that attracts FDI, and create a strong export industry. He is not arguing for a whole sale privatization, but a controlled exit of the government from running business to regulating, supporting and being a partner in business through a fair tax,and constructive legislations ect….

Ehsani’s detractors are trying to unfairly corner him in the failed policies of greensapn-bush

November 16th, 2009, 1:16 pm

 

EHSANI2 said:

Mr. Azmeh introduces the interesting catchy phrase of TINA but he gets confused with its application.

He makes it sound like my proposals are Syrian policy and that Mr. Dahi’s opinions are being cornered and discredited. This is laughable.

Mr. Dahi wants to preserve the status quo. He and his supporters are trying to convince us that there is no alternative (TINA). I am the one who is saying yes there are alternatives. Speaking of privatization has long been considered a taboo subject in Syria. Mr. Dahi wants it to remain that way by arguing that there is no alternative to what we have. It is remarkable to read how Mr. Azmeh misapplies a concept that he picked up from the Thatcher days and ends up arguing in favor of an argument he is trying to ridicule.

Both Mr. Dahi and Mr. Azmeh are yet to explain why their solutions have not worked in Syria. They point to fancy academic articles and point us to examples from Asia to Bolivia and Venezuela. They conveniently gloss over the subject at hand; the Syrian experience.

State-led intervention of the economy has been around for four decades. Protectionism has been around for as long. Attempts to make the private sector partner with the public sector have been around for just as long. What have the results been? I don’t need to bore the readers with my list.

Mr. Dahi concluded his comment from the previous post by saying:

“Ehsani’s prescriptions will not get us to where he wants us to go,they will lead us to a situation even worse then we are now.”

I don’t think I could that even if I tried.

Mr. Dahi continues to cite the need for “industrial policy”. I would appreciate it if he could explain in layman terms what he means by that from a Syrian perspective. What specifically does this mean and how this recommendation can be financed and adopted in today’s Syria.

Zubaida makes a number of very interesting observations drawing our attention how this movie started from the Nasser days.

As to the power projects, I am sure that the Syrian government would have jumped at the chance to borrow at 3% from the institutions listed above. My guess is that the funding was not there. The Cham holding deal (yet to be finalized) involved loans from the local private banks to the tune of $100 mm while Cham holding puts up the other $100 mm. Incidentally, the recent law to increase the capital of the local private banks is precisely to enable them to make such project finance loans as their current balance sheets were too small to allow them to participate in such projects.

love you alex,

You love Alex. I love you

November 16th, 2009, 2:57 pm

 

love you Alex said:

Dear Ehsani, thank you for your love:)

I think it is a mistake to lump both Mr. Dahi and Mr. Azmeh in the same camp… Mr. Dahi is a communist, and he is not worth debating… Mr. Azmeh on the other hand argues for strong governmental role in guiding the economy similar to Japan and other Asian economies (Toyota is not government owned, and Japan has a functioning credit and stock markets). I do not think he is defending the status quo in Syria

November 16th, 2009, 4:27 pm

 

Shamel Azmeh said:

I am quite surprised with the response from Ehsani on my comment. I am not sure if he read the comment or he just grouped me with the “state-led development” supporters and conveniently used the same arguments that he uses against this camp despite that what I was saying is significantly different from what classical state-led development scholars argue for (and as argued by Rodrik, few economists still believe that the old theories of state-led development can be successful in today’s world).

I am not arguing for a return to blanket protectionism and state-ownership of business enterprises. What I am arguing for, as is clear in my comment, is a mixed strategy that understands the role of the market and the private sector but also understands that to achieve upgrading and a shift from low value added activities to technology-intensive high-value added activities, a steering role of the state using active industrial and trade policy is needed.

He is saying that what I am saying has been tried in Syria and failed. This is laughable because the economic strategy in Syria over the last few decades has moved from a classical state-led development theory that views protectionism and state-ownership of firms as an end rather than a tool to an end (which is the transformation of the economy and the move into technology-intensive sectors) to a theory of a passive role of the state in which the state is only required to maintain the regulatory framework in which the economy functions (it doesn’t matter if there are some enterprises that are still owned by the state because the basic issue here is not the ownership of some enterprise but the active or passive role of the state regarding the process of upgrading and structural change). So, the strategy I am arguing for (and which was implemented successfully in the Asian countries) was never implemented in Syria.

Now, Ehsani is asking Dahi to explain what industrial policy is. Of course, it is beyond the scope of a comment here to explain this but I can refer him to the following papers to see what industrial policy is and how it can be used to promote economic development. Many of these policies can be used in Syria and it is always possible to invent creative policies at a general and a sectoral level.

Dani Rodrik “Industrial Policy for the twenty-first Century”

Sanjaya Lall “Reinventing Industrial Strategy: The Role of Government Policy in Building Industrial Competitiveness”

Hope that I won’t be “accused” of using “fancy academic articles”!!!

November 16th, 2009, 5:10 pm

 

Nicolas92200 said:

Ehsani, I am not sure if that the GoS does not have access to the development funding; I assume this is one of the source they will use to build the other plants. Again, the IPP is only a parallel track and only one of a number of power projects being developed at the moment. The USD 200m you refer to will not cover the project costs (as a rule of thumb budget 1.5mUSD per MW). Even if the law requires banks to increase their capital base, they would have sector and single client lending restrictions; hence whoever gets the deal would still need to tap the international financing to get this across the line.

Zubaida, is very correct on the Egyptian situation. He is also very correct on the pertinent questions to be raised. My little comment is that in the region, the off-take is supported by MoF guarantees (IFC will not re-invent the wheel on this); the issue is that the Syrian MoF does not have a rating; so what will lenders benchmark against to put a pricing on Syrian sovereign risk? Also, fuel supply cannot be merchant due to local regulation, the state has to enter into an agreement to supply this (again regional precedent – with one exception in a North African country but will not bore the forum with detail).

The real issue with this program (one of them at least), was that it was not advertised sufficiently, it was not communicated to the big/real sector developer. The IFC can review the documents and regulations, but they cannot take the government on a roadshow to speak to the sector big boys and market their project. If you look at the entire list (including the parties that were disqualified), none of them are major names known in the sector. Without the big boys you will not have a real program, and more importantly, you will not be able to mobilize banks to lend. Balance sheet capacity at banks today is very much linked to their major clients, if you bring little players, banks will not lend to them, as they prefer to provide what lending capacity they have to the people they know well, and these are the big boys, not the newcomers. It’s a circular debate, but again why my thought was that brining the IFC was a mistake, as they are theorists, not practitioners; you need someone who has been in the market and done such deals; the IFC has no track record in this, the major commercial banks on the other hand do (and are close to the developers).

This is similar to someone having a company that needs to be run and he brings in an economist instead of a businessman to do the job…..9with all due respect to the economists…but……)

November 16th, 2009, 5:34 pm

 

Badr said:

Ehsani, you yourself have mentioned in the past that the Syrian authorities will not undertake any steps that might jeopardize their grip on power. Don’t you think that your suggestions for economical reforms fall into this category?

November 16th, 2009, 5:43 pm

 

EHSANI2 said:

Dear Shamel Azmeh,

The premise of your article is that I am using the TINA argument which you introduced into the debate. My comment attempts to explain that I am not the one who is using TINA but it is the other way around as calls like mine for faster and more dramatic (yes dramatic is a dramatic term) changes have usually been met with TINA from the other side of the aisle.

As for your suggestion of a mixed strategy, I have no problem with that. If the state has the funds and the expertise to do what you suggest, I will cheer them on.

Nicolas92200,

You are correct. I would think that the American economic sanctions have made it harder to do they type of suggestions that you have made.

Badr,

There is no question that politics plays a role here. This is not a purely economic issue.

November 16th, 2009, 6:16 pm

 

Amir in Tel Aviv said:

I don’t like the use of slogans and the shifty try to discredit ideas
with simplistic shortenings: ‘Neoliberal’.
If Ehsani is neoliberal, then Mr. Dahi and his followers are ‘Neo National Socialists’ ( Neo Nationalsozialistische).
.

November 16th, 2009, 7:37 pm

 

Innocent Criminal said:

the last two posts and comments have been a really fun read. one of the best SC discussions in a long time.

November 16th, 2009, 8:58 pm

 

trustquest said:

This debate is terrific and timely but I consider it a larceny against the real people who own this debate, all previous comments should have preceded with the following disclaimer:
We regret the government of Syria blockade of free exchange of thoughts we wish this debate is taking place in the open, on the air waves, newspapers and outlets of Syrian public sphere with the participation of all intellectuals, universities, economic societies, professionals and civil societies freely discussing these matters which affect them, their lives and their future directly.

Because each case is different, what applies in Taiwan does not fit Zimbabwe or Syria, I think the government of Syria is not thinking on the same wave as the debaters at all, they are living in their cocoon, in the end they will ask the leader and he will trickle the solutions satisfying both camps. The real solution is when you consider the specific of each country. Syria currently in a big problem of what to do with its failed institutions and industries, they have to get rid of them they have tried everything so far, it did not work, they only need the right time to do it, they need time for time.

Adding to 3 and 4 comments, some industries which fit Syria and worth government fostering and can serve the rgional market of Middle Eastern countries is to build free market zones using Diaspora bond and create the following zones : Regional Food industry, Entertainment industry Hollyarab (Hollywood), Furniture Industries, Sport industries, Game and Toys industries, Regional Market place industry, Regional Trade industry, Regional Hospitality industry, Regional Cultural industry and may be after creating their first post office service they can think of Service and transportation industry. As you see there is nothing there yet.

November 16th, 2009, 10:10 pm

 

love you alex said:

Dear Mr. Azmeh, It is true that strong governmental involvement can produce successful economic stories like the ones you referred to in your article; there is however no doubt that government run businesses are inefficient and more often than not money losing enterprises. I do not believe that you were arguing for the later. No one including Ehsani is arguing for laissez-faire economics either, the only true laissez faire economics is in Somalia where there is absence of governmental regulation and investment.

We have to also remember that for every economic success story that was produced by heavy governmental involvement there are hundreds of small and big businesses that were started by entrepreneurs who dreamed big, worked hard and had access to highly educated talent, robust capital market, and efficient stock markets. Companies like Microsoft and Google, Genzime and Genentech, UPS and Nokia are just few examples. These companies enhanced the human condition, cured disease, produced jobs and generated billions in tax revenues for the government.

Syria should continue to develop it capital and stock markets, combat corruption and invest in infrastructure including research and education. The Syrian government should not be in the business of making biscuits, pencils and matches; it should certainly exit all the nonstrategic industries as quickly as possible.

November 17th, 2009, 1:43 am

 

Syria1 said:

In order to change the economic structure of Syria, you must address education. Without educational reform, you cannot have a viable economy. The current system which panders to regurgitating a professor’s lectures doesn’t support a knowledge based economy. Syrian students do not learn…they memorize.

Strong governmental involvement should be in the form of subsidies and tax breaks. Syria would do well to follow the steps of the state of Massachusetts which passed a $1 Billion dollar initiative to attract and promote Biotechs. It would be smart and sensible to stop graduating Business majors and instead graduate skilled professionals.

November 17th, 2009, 2:35 am

 

love you alex said:

Dear. TRUSTQUEST, you are obviously not reading the Syrian press. There is currently a very robust debate similar to what we are having on SC taking place in Arabic in Syria on Champress.com, Syriasteps.com, shamlife.com just to name few.

November 17th, 2009, 3:51 am

 

jad said:

I apologize for going off topic but it is important:
Again with much stronger and louder language Syria Women Observatory begin its usual leading role in defending the Syrian society men and women, by writing against the revised version of the personal status law in more than 6 related articles.
Please go check them, they are really new in the language used for attacking the government, it is worth reading and showing your support for the cause of creating a better Syrian society, we deserve better than what the government is offering, we own that right.

http://nesasy.org/
كفاكم لعبا بمصير سورية.. المخرج الوحيد هو قانون أسرة عصري على أساس المواطنة
بسام القاضي

November 17th, 2009, 3:51 am

 

norman said:

Look at this,

Tuesday, November 17, 2009 BusinessWelcome,

BUSINESS NOVEMBER 17, 2009 Damascus Revels in Its New Allure to Investors
Syria, a Former Pariah State Whose Isolation Sheltered It in the Economic Crisis, Sees New Gains in a Western Embrace

By CHIP CUMMINS
DAMASCUS, Syria — From the corridors of Syria’s stately central bank to the capital’s winding, barrel-vaulted souk in the heart of the Old City, it is hard to remember that 18 months ago Syria was a diplomatic and economic pariah state.

Growth is expected to come in this year at a respectable 3%, despite a big knock from the global financial crisis. European tourists spill out of recently renovated boutique hotels in the capital’s Old City. American accents boom across the dining room of the Four Seasons. In the tony Maliki neighborhood nearby, tourists, foreign businessmen and fashionably dressed Damascenes sip $4 lattes at one of several bustling cafes.

View Full Image

Associated Press

Syrians and visitors to a popular Damascus market have enjoyed the country’s recent emergence from pariah status.
Central-bank chief Adib Mayaleh is practically giddy about Syria’s new allure to foreign investors. Amid warming ties between the West and Syria, executives from two French banks recently dropped by his office to talk about opening branches here. The same French bankers “previously said they would have nothing to do with me,” he says, gloating.

“We see more and more banks coming here to investigate the market,” Mr. Mayaleh says. “Syria is virgin territory to explore.”

In fact, Syria’s still-isolated economy protected it from the worst of the global financial crisis. Banks here haven’t been hit by defaults. Tourism receipts dipped but are recovering again. A recent private-sector-led investment boom in real estate shows no signs of the bust felt in other regional markets like Dubai.

Earlier this year, real-estate adviser Cushman & Wakefield listed Damascus office space as the eighth most expensive in the world. That is behind Paris and two spots ahead of midtown Manhattan.

“The only Syrians that can buy houses are those that can sell one first,” says real-estate agent Ayman al-Saman, from his closet-size agency in the center of town. Residential real-estate prices have tripled since 2004, he says.

On top of all that, the West’s recent embrace of Syrian President Bashar Assad is translating into a booster shot of economic optimism.

Bassel Hamwi, deputy chairman of Bank Audi Syria, one of the largest private banks in the country, said the barrage of U.S. sanctions the Bush administration slapped on Syria starting in 2004 never was a real barrier to economic growth. But warming ties with the world’s largest economy can’t help but make a difference. “Syria used to be a ‘frontier’ market,” the Texas- and Harvard-educated banker says. “As of 2009, I personally consider this an emerging market.”

It has been a long road, with plenty of obstacles still ahead. When Mr. Assad took over here after his father’s death in 2000, he kept tight control of the state, suppressing dissent. But he also ushered in economic overhauls. Lower import tariffs allowed foreign goods from China and Europe to flow in. In 2003, banking reform opened the door to a handful of private lenders. The overhauls brought with them galloping inflation, but everyday Syrians embraced the new consumer culture.

View Full Image

Reuters

President Bashar Assad meets with French President Nicolas Sarkozy in Paris on Friday.
“We have lots of industry in Syria that produces everything we need, but people prefer things from abroad,” says 27-year-old shopkeeper Manhal Moujarid, in a packed appliance store full of Chinese-made heaters, tucked into the mountainside souk of Damascus’s poorer Muhajireen neighborhood.

Shortly after the U.S.-led invasion in Iraq, Washington accused Mr. Assad of allowing fighters across the border to battle Americans, and in 2004 imposed sanctions. In 2005, the U.S. held Syria accountable for the assassination of former Lebanese Prime Minister Rafik Hariri and pulled its ambassador. (Syria denies both allegations.)

The sanctions didn’t directly affect much business here since American companies weren’t that active anyway. But U.S. Treasury officials suggested European firms risked being frozen out of the U.S. banking system if they didn’t play ball.

“Foreign banks were intimidated by the American sanctions,” says Mr. Mayaleh, the central banker.

Then, in what could be one of the most significant diplomatic rehabilitation acts in recent memory, Mr. Assad turned the tables. Last year, he agreed to indirect peace talks with Israel. He also helped to broker a deal between warring Lebanese politicians. Earlier this year, U.S. commanders traveled to Damascus to discuss Syria-Iraqi border security cooperation.

French President Nicolas Sarkozy invited Mr. Assad to Paris in the summer of 2008 and flew to Damascus later that year. Mr. Assad traveled to France again on Friday.

President Barack Obama made outreach to Syria a plank of his campaign. This summer, he promised to reinstate an ambassador and ease some economic restrictions. Washington has stopped short of offering to lift sanctions outright. And there has been little recent movement on naming an ambassador, triggering grumbling among Syrian officials.

Still, the thaw has boosted confidence here, as shown by the sudden rush of Western bankers calling on Syrian officials. In an interview in his marble and wood office, Abdullah Dardari, Syria’s deputy prime minister for economic affairs, gestures to two business cards left on his coffee table by executives representing big U.S. financial firms.

“Finally,” he says, “we put Syria on the map for foreign investors.”

Write to Chip Cummins at chip.cummins@wsj.com

November 17th, 2009, 4:46 am

 
 

ugarit said:

“Former Pariah State ” — interesting that when the US seems to be less of a pariah state so is Syria 🙂

But let’s face it the US is still a pariah state and Syria was hardly one. Its neighbor on the other side of the Golan is the uber-pariah par-excellence. Leave it to a trashy American “news” agency to misunderstand the world.

November 17th, 2009, 12:43 pm

 

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