State Capitalism with Syrian Characteristics
Syria must learn the best practices of 'state capitalism' to achieve economic development in the 21st century.
Between Washington and Beijing
Ministers, policymakers, and businessmen from around the world have descended on Washington, D.C. for the International Monetary Fund’s (IMF) and World Bank’s (WB) annual meetings. In attendance for the first time are ministers from the new Syrian government, who also hope to establish the first high-level contacts with the U.S. government since the fall of the Assad regime.
Foreign Minister Asad Al-Shaybani has headed to New York for meetings with U.S. officials and the United Nations (UN), while Finance Minister Mohammed Yusr Barniyeh and Central Bank Governor Abdul Qader Husriyeh are in Washington, where they hope to build support from international institutions for Syria’s reconstruction. On the Syrian delegation’s agenda are lobbying for the removal of crushing western (primarily U.S.) sanctions on Syria, which will inhibit any serious reconstruction effort, and seeking aid from the UN, IMF, and WB in the form of grants, if not loans of some kind, to finance this reconstruction.
The Syrian government’s position is unenviable, simultaneously having to rebuild the country from scratch and deliver on hopes for freedom, prosperity, and order, and also not being important enough, but just important enough, for the U.S. to take its time–time Syria does not have–to deliberate over the status of crushing sanctions on the country. As far as the U.S. is concerned, they have bigger problems, as President Donald Trump's new trade war with China for global economic hegemony has gone somewhat awry.
Yet with these challenges are also opportunities for Syria to position itself and strategically arbitrage the emerging multipolar system and build its economy anew without compromising the country’s sovereignty. In Syria itself, there are competing visions for how exactly to do this. The Syrian government’s declared openness to integrating into the global economy has caused excitement and consternation. Foreign Minister Al-Shaybani’s interview with Tony Blair at the World Economic Forum (WEF) in late January was the government’s first formal attempt at presenting its vision for Syria’s reintegration into the global economy. Naturally, there are fears that the imposition of a ‘neoliberal prescription’ by western powers and institutions like the IMF and WB could see Syria’s economy (and sovereignty) sold off to foreign investors.
There is also a fear that without integration into global supply chains, Syria may relapse into the hermetic state socialism that has defined the post-war Arab world’s banana republics. Under the fist of the Assad dynasty, Syria was a little less closed off than North Korea. The Assad dynasty turned Syria into a fiefdom for extraction by themselves and a small group of businessmen loyal to them. What was touted as state socialism to develop Syria’s economy instead became one of the world’s most notorious mafia narco-states. Indeed, one of the chief fears for Syria’s economy is the return of the rent-seeking elites that profited immensely under the Assad regime, and are some of the few domestic players with the capital and connections to reap the rewards of economic liberation in Syria.
“The rentier elite can exist as a separate class to the holders of political office or there can be a degree of overlap between the two. In the case of Syria, the overlap has been enormous. The Assad family were chiefs of the country’s rentier elite class. Most famously, when at the height of his powers in the early 2000s, Rami Makhlouf, Bashar’s cousin, was reported to control over 60% of Syria’s economy, functioning effectively as the commercial arm of the regime. After looking out for themselves, the regime dispensed patronage to their loyal clients in the country’s business elites. Ambitious businessmen seeking to transform modest wealth into a substantial fortune, or seeking to preserve and expand their pre-existing fortune, jostled for favours at the court of the Assad family, who held the keys to the nation’s wealth and doled it out to protegees in exchange for political loyalty.”
Sheer practicality demands that Syria pursues any avenue it possibly can to see sanctions removed and money become available to invest in the Syrian economy’s reconstruction. Still, short-term relief like UN grants and IMF loans threatens to barter for Syria’s sovereignty and a truly productive economy in the long term. The biggest threat this poses is that the neoliberal prescription often hollows out state capacity instead of developing it, assuming that state capacity comes at the expense of economic dynamism. This is entirely wrong, as we will see later.
In any case, the Syrian government is not flying blind. There is cognisance of the fact that Syria’s sovereignty depends on its economy, and that Syria’s integration into regional and global supply chains does not mean a fire sale on its national resources and assets. Consider the government’s position on trade talks with Turkiye seeks larger trade and economic integration between the two countries while also ensuring Syria’s remaining industries are not wiped out by Turkish competition. The government has also made recent overtures to the South Korean government, with Foreign Minister Al-Shaybani personally driving the South Korean envoy through the streets of Damascus. Qutaiba Badawi, head of Syria’s General Authority for Land and Maritime Ports, met with the Chinese company AOJ Technology to discuss infrastructure investment and cooperation. Should the government successfully restore stability in Syria, it may not need western capital, but could strategically position the country as a necessary node in China’s Eurasian trade highway.
At the turn of the world order as we have known it in our lifetimes, Syria need not impose on itself a punishing neoliberal prescription that forces a relapse into patrimonialist “market economies” dominated by rent-seeking oligarchs, or the bog-standard hermetic state socialism of the Arab republics. Syria should look east, where successful practices in public administration and economic development have made a handful of countries in East Asia the only development success stories outside of Europe and North America. And they achieved this by eschewing entirely the prescribed models for development made by western institutions like the IMF and WB.
State Capitalism with Syrian Characteristics
At the 12th National Congress of the Chinese Communist Party (CCP) in 1982, then-Chinese Premier Deng Xiaoping heralded China’s market reforms as a new era of ‘Socialism with Chinese Characteristics’. This phrase seems mutually contradictory, and at the time, was meant to ideologically smooth over potential conflicts between CCP’s political communism and a new era of capitalist enterprise in China. But it seems to have worked. Over the past four decades, China has pioneered a model whereby sandboxed markets have been used as feedback mechanisms for improving state capacity, rather than the state existing for the sake of the market, or the market existing for its own sake entirely. China is now the world’s premier industrial and manufacturing power, something the west, and particularly the U.S., is only just starting to internalise–and react to, quite ineffectively.
Yet Xiaoping did not invent ‘Socialism with Chinese Characteristics’ ex nihilo. Instead, he drew on a genealogy of ideas or what we might call a tradition of development called state capitalism from neighbours like Singapore, South Korea, and Japan, who themselves adopted this tradition from the west. Xiaoping crafted this model into one fit for China’s needs and purposes. It is hard to imagine today, but with the possible exception of Britain, the origins of western prosperity lie not in free market paradigms, but in the expansion of state capacity, which could also effectively protect and nurture native strategic industries for global competition. Thinkers and statesmen like Alexander Hamilton and Henry Clay implemented a state capitalist model of development to nurture strategic industry in the U.S. Germany’s post-war equivalent of state capitalism was Ordoliberalismus, which deserves credit for the Wirtschaftswunder economic miracle. Ordoliberalismus itself was derived from the long German tradition of state capitalism instituted by Otto Von Bismarck, Chancellor and arguably the true founder of the German Empire in 1871.
State capitalism may be erroneously referred to as mere protectionism or reduced to import-substitution, yet the countries that have successfully developed in the industrial age have relied on manufacturing and exports to do so, not merely internal production and consumption. This is the main difference between models of ‘state capitalism’ that have failed and models that have succeeded. Import substitution is not sufficient. A country must learn to sell its goods and services, not just produce them.
Another key difference is that countries with successful models of state capitalism draw a line between ‘strategic capital’ and financial capital. The former emphasises the importance of non-monetary returns on otherwise private economic activity and investment, such as building public goods like public transport infrastructure, telecommunications, or energy plants, i.e. strategic capital. The use of regulations, incentives, and even state-owned enterprises (SOEs) are tools by which the state nudges the market in a given direction towards these higher objectives, and prevents market forces from pursuing profit above all else, i.e. financial capital. Theories like comparative advantage have permanently trapped many countries in low states of development as financial capital dictates where and how wealth is created and consumed, which is nearly always in service of the mere pursuit of profit. The state, as the highest and sovereign public actor, is the only force capable of curtailing market excess and directing its energy towards climbing the value chain.
What further distinguishes productive economies from extractive economies usually dominated by financial capital and oligarchies is the emphasis on cultivating ‘productive powers’, something that Vizier has previously explored in detail with regards to how Syria can build an equitable political economy:
Building an equitable, robust and dynamic Syrian political economy means incentivising productive economic activity. Productive economic activities are those relating to the process of production: marshalling of resources to create more valuable products, at least in exchange terms, than the total value of their inputs. It is the work of everyone from the designer, to the engineer, to the immediate makers of products, and the entire collection of ancillary services around production.
Still, there is a great deal of ambiguity around the slogan of Socialism with Chinese Characteristics. But this is intended. It simultaneously means nothing and means what the Chinese state requires of it. As Xiaoping declared in 1962, two decades before his rise to the leadership of China, "It doesn't matter if a cat is black or yellow, as long as it catches mice.”
It is from the East Asian state’s successful and extremely pragmatic practices, combining state capacity and economic development through free enterprise, seemingly contradictory to orthodox economics, that the Syrian government should explore if it wants to build a model of political economy that secures Syria’s sovereignty and prosperity.
We could call it State Capitalism with Syrian Characteristics.
Rather than articulating a complete theory or model for Syria’s political economy, State Capitalism with Syrian Characteristics serves as a prompt to explore alternative models of economic development and resituate the role of the state in the economy away from the failed neoliberal paradigm of the past 50 years, or the prevailing alternative in the Arab world, hermetic state socialism.
However, we should be modest. There is no scenario in which Syria adopts an industrial strategy like that of East Asia, or becomes an industrialised country on its own. Syria’s path to development will rely on its unique geographical position, resources (natural and human), and being at a particular time in the global economy where the ‘pole’ of the global economy is being reweighted all the way east. Turkiye’s industrial and military power is rising (even though this is not reflected in the economy now, it will be in a decade when Turkiye becomes a pre-eminent manufacturer in Europe, contrary to most predictions), and the Gulf Arab States are becoming the global centre for financial flows, shipping, energy, and commodities’ trading.
Syria has natural resources, but too small to matter: oil, gas, agricultural produce, and phosphates. It is geographically two rump territories merged into a single state: a third of Mesopotamia (with the other two thirds in Turkiye and Iraq), and a quarter of the Levant. Syria’s population is also small, numbering some 25-30 million people (the last estimate was made in 2011 at the onset of Syria’s revolution at around 22 million, and aligned with regional growth trends, is likely now nearer to 30 million people).
Syria’s development will thus rely on three things:
Economic integration that positions Syria to take advantage of regional and global trends, particularly situating Syria as a key economic node between Turkish industry and Gulf finance and energy.
Cultivating Syria’s talent to create a truly entrepreneurial and innovative economic model.
A hyper-competent public administration, possibly styled after Singapore’s, is responsible for captaining the ship of state and delivering on the two points above.
State Capitalism with Syrian Characteristics will be what emerges out of this mix.
Practical Policy Proposals & Future Research for Syria’s Political Economy
At Vizier, we research the political economy of development, focusing on Syria and the MENA region. Below are some policy proposals borrowing from successful state practices from around the world, which will be explored and tailored to Syria’s needs in greater detail in future Vizier reports. These proposals emphasise the importance of building state capacity and directing that capacity to fostering economic development that secures Syria’s sovereignty and prosperity.
Land Reform: An absolute prerequisite to economic development, land reform must reduce inequality, more widely distribute land ownership, incentivise against rent-seeking behaviours, and improve productivity.
Credit for Production: Nationalise the banking system and establish credit quotas for strategic sectors in Syria, such as agriculture, pharmaceuticals, electronics, and beyond. These quotas must be continually revised to combat corruption and waste, and sectors and companies climbing the value chain are preferred over others.
Tariffs for Industrial Development: Protect strategic sectors from imports, while emphasising their internal competitiveness (i.e. mitigating against monopoly via regulation or favouritism), and incrementally reducing tariffs to expose strategic sectors to ‘stress-tests’ with foreign competition.
State Investment Funds: The state must become a proactive investor, identifying strategic sectors of the Syrian economy in which investment can create markets, provide jobs, and help Syria’s economy climb the value chain.
State-Owned Enterprises (SOEs): Strategic industries and assets must be owned by SOEs. Energy resources, transport infrastructure, and telecommunications. Diaspora Syrians and friends of Syria who have extensive experience with well-managed SOEs in the Arab Gulf, Singapore, and Norway should be brought in to advise on best practices.
Diaspora Participation: Encourage the global diaspora to return, invest, and do business in and with Syria. Additional support should be on the cultivation of productive powers in Syria, such as through knowledge and technology transfer. Additionally, creative financial instruments like ‘Diaspora bonds’ can allow diaspora to go beyond remittances and sporadic aid, to directly invest in the economy alongside the state.
National Works Program: A 5-year programme to get Syria working. Establish a central agency under the Ministry of Economy to distribute funding to private employers earmarked for hiring Syrian workers. Employers must work on particular programmes for national rejuvenation as set out by the government, focused on public infrastructure like public buildings (schools, government offices, etc), transport infrastructure (roads, railways, airports, etc), and beyond.
Technical Education: Learning from the failures of the mass university education model elsewhere, Syria’s new education system should be a vocational school system focused on technical education. Most students should finish schooling at 15-16 and enter the workforce. The state should further subsidise retraining for workers later on in life to adapt to technological change.
But who in Syria would be responsible for implementing this? Personnel is policy. Whether Syria intends to undertake land reform, financing public infrastructure projects, building SOEs, or creating new markets, all require state capacity. After all, the state is the sovereign ‘centre of command’ that issues directives as “suggestions” to which market forces orient economic activity. The state creates the space for these market forces to exist. The absence of this centre of command in the neoliberal prescription is the absence of sovereignty. And this state capacity comes in the form of an economic bureaucracy.
Syria needs to look at case studies of successful economic bureaucracies in the examples mentioned above to understand the importance of competent state-led development. An economic bureaucracy would strategically identify Syria’s current economic strengths and weaknesses, assess the global economy, and figure out how Syria can integrate into these supply chains. But the work does not stop there. This bureaucracy would then need to determine how to incentivise market forces to climb the value chain. This work is fundamentally about the design of Syria’s future political economy, ensuring a balanced approach to the needs of both capital and labour, and ensuring any trade-offs made from this relationship serve the purpose of national sovereignty and prosperity.
The dangers of Syria failing to implement a program of state capitalism are to either collapse back into hermetic state socialism or become a playground for multinational corporations and capital while the people languish and the youth flee the country, as has happened in other countries.
On Vizier’s agenda for the year ahead is to chart the contours of State Capitalism with Syrian Characteristics by following political and economic developments in Syria, fully fleshing out the policy proposals listed above to imagine a path of alternative development (such as land reform, building economic bureaucracies, successful state investment funds, etc), and analysing how Syria can position itself amid the seismic reconfiguration of global supply chains.
Further Reading
Articles:
Books:
Forging Global Fordism, Stefan J. Link
Kicking Away the Ladder, Hachoon Jang
The National System of Political Economy, Friedrich List
State Capitalism, Joshua Kurlantzick
The Entrepreneurial State, Mariana Mazzucato
How Asia Works, Joe Studwell
How to Make an Entrepreneurial State, Rainer Kattel, Wolfgang Drechsler, and Erkki karo