America Squanders Strategic Opportunity for Shared Prosperity...

Instead of War in Syria. Henry Kissinger once said, “Opportunities cannot be hoarded; once past they are usually...

By Leif Rosenberger (Chief Economist, ACERTAS)

irretrievable.” [1] That opportunity for shared prosperity instead of war came in 2009 in Syria. Before then, the international community reacted negatively to one wave of domestic repression after another in Syria. The first wave started in 2001 and the second one started in 2006. After each wave of repression, the international community treated Syria as a pariah. And whenever Syria feels threatened by a hostile external environment, it almost always is intolerant of domestic dissent. [2]

To put this window of opportunity for shared prosperity in Syria in 2009 into a strategic context, it’s important to understand just how deep rooted Syrian socialism was starting in the 1960s. When the Syrian Ba’ath party came to power in 1963, nobody in the Syrian government was thinking about free market reforms. In fact, the wind was blowing in the opposite direction. The economy was essentially closed. One of the first things the Ba’ath party did when it seized power in Syria in 1963 was to nationalize much of the economy. An inefficient state controlled all the banks and many of the major industries after nationalization.[3] Syria wanted nothing to do with America and so there was no opportunity for shared prosperity.

If we fast forward to the 21stcentury, it’s clear that Syria’s economic growth was relatively buoyant because of high oil prices from 2004 until late 2008. While the production of oil still dominatedthe economy, its oil output fell from 600,000 barrels a day (B/D) in the late 1990s to just 380,000 B/D in 2008. In fact, Syria was actually a net-oil importer in 2008 for the first time in decades. Syria’s oil revenues fell in 2008 despite high oil prices in the first half of 2008.

To make matters worse, climate change slammed Syria. From 2006 through 2010, Syria suffered from the worst drought in at least 500 years. The drought devastated the Syrian countryside where close to 60% of the Syrians loved. 75% of the Syrian farms failed and 85% of Syrian livestock died.[4]

Facing adversity, the Syrian government belatedly grasped the reality that it needed to adapt to survive. And so in 2005, the Syrian government opted for a “social market economy.” The new policy was a de facto acknowledgement that the old economic model was stagnant and it was time to shake up the economy. IMF helped Damascus draw up a new economic blueprint, whose purpose was to shift Syria away from a command economy to one closer to a free market economy. [5]2008 saw the growth of economic diversification and stronger non-oil sectors. Non-oil exports rose 23% in 2008 alone. Projects were underway to double Syria’s natural gas output over next 3 years.

Syria’s economic transformation was impossible to miss. Back in 2003 Syria’s statist economy was closed to markets. Syria only had just 6 state banks and only serviced the public sector. The private-sector had to leave Syria to do its banking. In addition, Syrians could only dream of borrowing to buy a house and ATMs were an alien concept. But between 2004 and 2008 Syrians started to use credit cards and apply for loans, not just to buy homes, but to also buy new cars and computers. Syria boasted 9 private banks, including two Sharia-compliant entities. Restrictions on foreign currency transactions were relaxed. As new sectors opened and the business climate improved, private sector contribution to growth of non-oil GDP rose 80%.

That said, Syria’s movement toward a free market still had a long way to go. To make matters worse, the global financial crisis took a run at Syria in October 2008. Luckily, Syria’s tight regulations and weak global links to international banking partially protected Syria. Although Gulf construction firms were still buying land in Syria, Damascus worried that the financial crisis might cause Gulf countries to cutinvestments in Syria.

An additional concern in 2009 was a reduction in remittances from abroad if foreign firms were forced to cut staff. That was already a big threat in Central Asia. But most Syrians working abroad were in skilled sectors and so such a shift could mark a reverse of the brain drain. The problem of course would still be a lack of opportunity which drove them out in the first place.

Still, theglobal financial crisis hurt Syria’s overall economic picture. It was causing a fall in Syrian export markets and restricting government spending because of lower oil revenue. That translated into a slowdown in GDP growth, from 5% in 2008 to 3% in 2009. As export growth slowed the current account deficit was on track to worsen from 1% of GDP in 2008 to 5% of GDP in 2009.

Syria’s economic reformers argued that economic reform was the only way to attackmassive unemployment rate, rampant inflation and dwindling oil reserves. But those calling for free market reforms – convinced that this was the only path out of chronic economic malaise – faced an uphill struggle

The global financial crisis and an economic slowdown also had an impact on support for Syrian economic reforms evolving from pessimism to ambivalence to optimism. How did this roll out? Immediately following the collapse of the big US banks, it seemed that Syria’s nascent reform program was doomed to failure. Among Syrian economic reformers there was concern that the return of government bailouts to save the western banking system would play into the hands of those hard liners in Syria arguing against free market reforms. President Bashar al-Assadpersonified those in Damascus who struggled to decide which way to go. At times, Assad seemed to back reform. But he also puts obstacles in their way. It is these same conflicting signals that hurt Syria on the international stage, provoked even more US economic sanctions and frustrated accord with EU countries.

But then Syrian economic reformers had a second chance. French President Sarkozy travelled to Damascus in September, opening the door to rehabilitation. In addition, the Syrian foreign minister visited London. Although there was a noticeable Syrian slowdown in the pace of implementing economic reforms, there was reason to be optimistic about continuing economic reforms in 2009. Syria continued its gradual shift to diversification. Inherent in this approach were more free market reforms. A case in point was the creation of a Syrian stock exchange. Just a few months back the stock market appeared to be shelved. But economic reformers were now winning out. Syrian stock market opening was back on track and slated for 23 February 2009.

Re-establishment of a stock market in Syria was arguably a crucial step to take the economic reform process forward. The stock market was the next piece of the puzzle. There were between 26 and 45 companies ready to list. Companies would require a minimum market capitalization of $5 million and 3 years of audited financial statements. Most importantly, the stock market would also be open to foreign investors.

Opening the Syrian stock exchange also sent an important signal to the Syrian bureaucracy. Once a stock market was up and running it would be a symbolic success for those promoting free market reforms in Syria -- an issue that became more pressing as the country’s limited oil reserves declined. Opening a stock market was a positive signal to attract foreign investors. A stock market showed Syria was on its way to becoming an emerging market economy and obviously an important indication that it was open for American trade and investment.

Thus, the Syrian domestic situation had changed. President Bashar al-Assad was pursuing economic reforms at home and abroad. Syrian free market reforms created a strategic opportunity for America to reward Damascus with economic interdependence and shared prosperity. If the Syrian people were happy with job creation and rising incomes as a result of Western trade and investment in Syria, hope and opportunity would replace the anger and fear of Arab Spring. Therefore, there would be no incentive for President Assad to crack down on muted political dissent at home. Assad would think twice before throwing away shared prosperity with America and the West.

US Secretary of Defense James Mattis recently said, “You don’t want to miss an opportunity because you were not alert to the opportunity. So you need to have that door open.” [6]Unfortunately, neither President Bush nor Obama administration were alert to the opportunity or had the door open to support Syria’s movement toward a free market economy. Why did they squander this strategic opportunity? President Bush militarized American foreign policy after 9/11. Syrian President Assad failed to support President Bush’s Iraq War (2003 -2011) that was based on pure fiction that there were weapons of mass destruction (WMD) in Iraq. President Obama promised to stop militarizing American foreign policy. But as John R. Deni, an analyst at the Strategic Studies Institute at the Army War College points out, Obama failed in this regard to put more diplomacy and development in American foreign policy. Syria was a case in point.

If the US and Syria found common ground in shared prosperity, it’s possible they could build on this progress to find common ground in shared security. Or America could follow the George Clemenceau legacy of economic coercion. After World War I, that economic coercion led to German resentment, the rise of Hitler and World War II. In the case of Syria, a US policy of economic coercion and no viable alternative option could well lead to Syrian resentment, another Syrian wave of repression like in 2001 and 2006. And whenever Syria felt threatened by a hostile external environment, it would almost always be intolerant of domestic dissent and crackdown forcefully for regime survival. America chose the George Clemenceau approach of economic coercion and another cycle of forceful Syrian repression at home.

Earlier we cited Henry Kissinger who said “opportunities cannot be hoarded; once past they are usually irretrievable.” Not surprisingly, America’s decision to squander that creative economic opportunity with Syria led directly to Syrian resentment and civil war. The point is President Assad arguably would have been more relaxed toward dissent at home when a more peaceful version of Arab Spring happened in Syria had America pursued economic interdependence and shared prosperity with Syria.

[1]Harvey Starr, Henry Kissinger: Perceptions of International Politics, 2015, page 63.

[2]See Carsten Wieland’s chapter 11 in Raymond Hinnebusch and Tina Zintl’s (edited) series on Syria from Reform to Revolt, vol 1 - Political Economy and International Relations, Syracuse University Press, Syracuse, NY, 2015.

[3]Andrew England, Andrew England, Syria’s Next Step to Reform, Financial Times (FT),London, 1 October 2008.

[4]James L. Gelvin, The New Middle East, Oxford University Press, New York, 2018, p. 56.

[5]Ibid.p. 55.

[6]Dan Lamothe, Mattis arrives in Afghanistan, says some in Taliban may be willing to pursue peace, Washington Post, 13 March 2018.

Photo Courtest of Joel Bombardier

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