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Transition economies in the Middle East: the Syrian experience

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There have been no in-depth studies of the post-socialist transition in the Middle East. Mahmoud Alajaty discusses the Syrian economic transition, from the early 1990s to 2011

Image courtesy of interviewee. June 25, 2024

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This video discusses the concept of transition economies, focusing on Syria as a case study. The speaker highlights that the traditional scope of transition economies often includes countries like China, Russia, and Eastern Europe, but notes that it should also encompass contexts like the Middle East.

The discussion begins with Syria's economic history, tracing its evolution from independence from French mandate to a centrally planned economy under the Ba'ath Party, which prioritized state ownership and communist principles. Initially supported by oil revenues, the economy faced significant issues in the 1980s, leading to a collapse of state-owned enterprises due to inefficiency, lack of competition, and mismanagement.

In 2004, the Syrian government recognized the need for substantial economic reform and began transitioning to a market-based economy while attempting to retain some socialist principles. This video gradualist approach aimed to integrate the private sector without a sudden shift, which could destabilize the economy.

The speaker argues that the notion of transition economies is still relevant today, especially in light of events like the Arab Spring, which interrupted Syria's economic plans and shifted focus to conflict. The speaker emphasizes that transitions in economic philosophy have significant implications for business and governance, and thus warrant ongoing scholarly attention. Transition economies, as they evolve, continue to impact economic activities and warrant further investigation into their business implications.

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X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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Basically, the, the, the, the driver

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or the motivation behind the paper is the topic itself,

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the transition economies.

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When, when you look at the concept

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of transition economies,

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you realize most researchers talk about China, Russia,

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central and East Europe countries,

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and other countries are just out of the context.

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Um, but the concept itself is broader than, than this.

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Um, so transition economies mainly talks about com,

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economies moving from one type of economy to another type,

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or following one philosophy, moving

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to a different philosophy.

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So what I try to do in this paper is to show the, the,

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the broader meaning of the concept

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and taking, take the concept itself from the traditional

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contexts and take it to, and to, to be applied

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or to apply it to a different context,

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and in this case, the Middle East, focusing on Syria

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as an example of these countries.

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Um, I hope this makes sense

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or do you want me to expand on this?

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To be honest, to understand,

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almost any country in the Middle

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East understand the context.

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You need to go back before the 1990,

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because the context from 1990 to, 2004,

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and then beyond that, to the current ongoing conflict,

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that took place

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or started from 2010, 2011, we need to go back actually

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to the period when Syria became independent

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from the French mandate.

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Um, and then it followed, an economic system

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that is influenced by the French, education

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or French philosophy of what economy,

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or how economy should look like a mainly market-based

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economy, where the supply

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and demand mechanism will determine who enters the market

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and who exit the market.

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That lasted until mid fifties, when, the economy,

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the young economy started facing problems

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during these problems.

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Um, a party,

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was formed following the communist mentality,

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a communist philosophy, which was

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gaining momentum at that time.

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Um, the, I'm talking here about the bath party,

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who took over the country, around 1964

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and created, a communist state where private ownership

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of production, facilities prohibited

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and only the state that owns everything

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and distribute the wealth of the nation.

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Um, this worked okay for the 1960s

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and seventies because, of the revenues from oil,

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support from Gulf countries, which meant,

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infrastructure projects were being accomplished, education

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and health services was available

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for everyone in the country.

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This didn't last, until, it didn't last long.

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By the 1980s, things started, showing problems.

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This mentality or this philosophy, this economic system,

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definitely started showing problems, for example,

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coordination problems,

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because state planning commission looking

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after all the state owned enterprises running all the

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businesses in the country lacked all the,

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that they needed information that private businesses have.

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They didn't take, they didn't look at quality,

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they didn't look at customer services.

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Um, all these principles

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that you find in the private sector, this led

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to the collapse of state owned enterprises,

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especially the country didn't develop export capacity

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to gain foreign currency to import products,

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which are not possible, which were not possible

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to be produced in the country at that time.

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So the state owned enterprises were collapsing, falling,

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apart without the capital needed to,

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import needed support

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or technologies that could update these.

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By that time became what became an old fashioned factories

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add on top of this lack of incentive,

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among employees in the public sector.

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And, for example, the incompetent managers

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of state owned enterprises who were appointed

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for political reasons.

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They were, for example, part of the party

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and then appointed as a manager without any

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industrial background.

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They didn't have idea about human resource management,

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marketing, et cetera.

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All these problems among others led to the collapse

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of the economy until, by the end of the 1990,

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the period you've mentioned, when the government started

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realizing, discount, move on without reform

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of the current climate system, we can't continue

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and we can't make the country, the economy,

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recover without help of private sector.

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So at this stage, the state started thinking of a way

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to collaborate with the private sector,

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gain some support from the private sector, allowing them

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to operate in some, industries where,

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private investments

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or private ownership was prohibited in the past.

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What I refer to in the paper, the gradualist approach

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or the incremental approach

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where the government was thought,

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we'll try to get some help.

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We keep our mentality will keep our ideology alive,

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which is the communist ideology,

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but we will get some help from the private set sector.

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Unfortunately, this way of thinking,

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without a serious commitment to market-based economy,

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you can't get any meaningful results.

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And obviously the, the, the,

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the economy didn't achieve the desired outcomes.

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By 2004, the government in Syria,

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the bus party itself realized that a major reform is needed.

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Actually this,

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they are sayings about this like this way of, we are in

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and out at the same time.

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It didn't work. They needed to be either in or out,

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and definitely in is more important to be part

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of the market-based economy, commit to that type

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of economy is became

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An, significantly important

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for recovering the Syrian economy.

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And that's why they decided in 2004 to transition completely

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to a market-based economy with an emphasis on social,

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support, some like principles

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that they could borrow from the socialist

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system, if you like.

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I think that take us to the 2004 period,

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you asked about definitely the communist,

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economic policy in every context proved

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to be flawed, proved to not work for all the reasons

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I explained before.

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So the transition definitely is needed

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and was needed at that time,

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and was needed also in every country

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because at the moment in in the world, you, you can't think

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of one or two countries still following this mentality.

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I can't think of any countries apart from North Korea

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that's still following the fully communist, mentality.

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Apart from that, this, this economic system that was,

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that split the world half by half

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with the market-based economy during the 1960,

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now in the seventies, now disappeared,

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and only one country exists.

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So definitely that, that the transition was needed.

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And it is a good step ahead,

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and you could witness this whether in numbers that

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because the economy was recovering maybe at a lower rate

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than what you, than what what you would expect.

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Because as I said before, either

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because of the lack of commitment to economy

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or the gradualist approach that the government decided

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to move towards in order not to change the count,

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the country, in, in a big bang approach

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that was followed by, for example, Poland when they decided

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during the late eighties

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and early 1990s when they decided to move

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to market-based economy.

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And it's more similar to the approach that was followed

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by China and Vietnam moving gradually toward

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market-based economy.

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So is it good? It's definitely, a good step

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and people on street started noticing this

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because to be able to provide job opportunities

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and overcome the challenges I mentioned

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with the communist economy,

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you need a dynamic private sector to absorb un

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the unemployed, workforce, the young

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for workforce in the, in the market

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and state owned enterprises cannot employ everyone.

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If they employ everyone, they give them low salaries,

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they end up irate.

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Which what happened actually, at, during the eighties

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and the nineties, many people would move to Gulf countries

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and look for jobs because in Syria, the, the income was low.

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Um, and it is not good

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for the state owned enterprises themselves

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because when you give the employee job security,

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100% job security with low payment, if they work

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or they don't work, they get the salary,

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they have the job security,

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they will not take care of the facilities.

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The public facilities became the property of everyone,

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but the property of no one at the same time.

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And that's, that's something would not, doesn't do well

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to state on enterprises.

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And this practice proved

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to be wrong in all these communist countries.

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The choice to move to graduates approach even

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after 2004, it's sometime hard

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to interpret because it could be a wise decision

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because the government, as I said

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before, didn't want to jump into the big bank approach,

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to move and because that's will cause

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a shock to the economy.

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Um, and high rate of, unemployment,

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which might not, the country might not be ready to absorb.

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Um, so it might be a wise thing.

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It might be, related to the nature of the economy, the,

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to the political system,

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and the ruling pass party in the country

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and the, the, the, the the need to keep things in control

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and not to lose things out of control.

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If you, if you like, similar

09:58.315 --> 10:00.735
to other post-communist countries

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that followed such gradual approach in order

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to make sure they still design the economy

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to move in a certain direction, which is

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different from the countries that allow the economy

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to move in different directions without intervening in

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what are the industries that are needed in the economy

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and what industries that are not.

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So the design and the control of how the economy should move

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might provide the justification

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or explanation for, for the gradualist approach,

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but also it could be, the consequences

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of the Big bang approach that prevented the government at

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that time from moving towards, the,

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market based economy in a quick pace.

10:44.845 --> 10:49.785
Um, the conclusion is that I, I, I will put it this way.

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I have many years ago, maybe four

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or five years ago, read a piece of work

10:57.035 --> 11:00.295
by the key authors in the field talking about the concept

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of transition economies as a topic

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that is now irrelevant or something that is now expired.

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The, the idea of transition economies now ended

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and we, we should move on and took look at something else.

11:15.785 --> 11:18.245
And I would strongly disagree with this

11:18.715 --> 11:20.805
because again, if we go to the root

11:20.805 --> 11:23.205
of the transition economy, the meaning

11:23.205 --> 11:24.565
of transition economy and economy

11:24.715 --> 11:27.485
that could move in any direction from centrally planned

11:27.485 --> 11:29.365
economy to a market-based economy,

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from a market-based economy to a different type

11:32.285 --> 11:33.365
of market based economy.

11:33.545 --> 11:34.965
Any change in the philosophy

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behind the economy in the country can label the economy

11:38.665 --> 11:39.765
as a transition economy.

11:39.825 --> 11:41.285
And it's worth the studying it

11:41.315 --> 11:43.965
because it has implications on business

11:43.965 --> 11:45.365
activities in that context.

11:46.185 --> 11:50.725
So I believe any transition in an economy worth looking at

11:50.865 --> 11:54.205
to make sure we understand the business responses

11:54.465 --> 11:57.405
to these transitions and what are the implications on

11:57.405 --> 11:58.525
that, context.

11:58.755 --> 11:59.805
I'll give you an example.

11:59.945 --> 12:02.885
For example, we have all witnessed the

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Arab ing in the Middle East.

12:05.225 --> 12:08.125
Um, that interrupted actually the Syrian transition

12:08.125 --> 12:09.365
after 2004.

12:09.705 --> 12:13.445
The plan was to move, as I said, from 2004.

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Um, it started, in a more serious commitment

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to market-based economy until 2011 when the, conflict,

12:21.025 --> 12:24.125
started in Syria and interrupted the whole plan.

12:24.125 --> 12:26.085
And the government moved from funding the,

12:26.185 --> 12:29.485
or planning the economy to funding the, army

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and the conflict, in Syria.

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This is now a transition in the philosophy,

12:37.085 --> 12:38.945
of the government, about the economy.

12:39.295 --> 12:41.905
Same things in Egypt things, same thing in Tunisia

12:42.285 --> 12:44.065
and other Arabic countries

12:44.065 --> 12:46.785
or other Arab countries where the Arabs are bring,

12:47.245 --> 12:49.305
caused the change in the system there.

12:49.615 --> 12:51.785
This would have changed in the political system.

12:51.855 --> 12:54.265
This would have changed the, philosophy,

12:54.265 --> 12:56.705
the economic philosophy behind the country economy.

12:57.365 --> 12:59.265
And all these changes would lead

12:59.265 --> 13:01.545
to a transition in policies in institutions,

13:01.995 --> 13:04.105
which are the rules of the game in any country.

13:04.285 --> 13:05.345
And we need to understand

13:05.345 --> 13:07.665
how this transition affect businesses.

13:07.685 --> 13:11.505
So it's an ongoing topic that I don't think would

13:12.285 --> 13:14.985
die at any moment because it's always happening.

13:15.125 --> 13:16.865
And economists or countries

13:16.865 --> 13:18.465
and governments continuously

13:18.685 --> 13:22.065
for any reason might change their philosophy behind

13:22.245 --> 13:24.345
or the philosophy of their, the economy in their country.

13:24.525 --> 13:26.585
And it's worth investigating

13:26.645 --> 13:30.065
and investigating their impact on businesses.

00:00 - Basically, the, the, the, the driver or the motivation behind the paper is the topic itself, the transition economies. When, when you look at the concept of transition economies, you realize most researchers talk about China, Russia,

00:15 - central and East Europe countries, and other countries are just out of the context. but the concept itself is broader than, than this. so transition economies mainly talks about com, economies moving from one type of economy to another type, or following one philosophy, moving to a different philosophy. So what I try to do in this paper is to show the, the, the broader meaning of the concept and taking, take the concept itself from the traditional

00:44 - contexts and take it to, and to, to be applied or to apply it to a different context, and in this case, the Middle East, focusing on Syria as an example of these countries. I hope this makes sense or do you want me to expand on this? To be honest, to understand, almost any country in the Middle East understand the context. You need to go back before the 1990,

01:05 - because the context from 1990 to, 2004, and then beyond that, to the current ongoing conflict, that took place or started from 2010, 2011, we need to go back actually to the period when Syria became independent from the French mandate. and then it followed, an economic system that is influenced by the French, education or French philosophy of what economy, or how economy should look like a mainly market-based

01:36 - economy, where the supply and demand mechanism will determine who enters the market and who exit the market. That lasted until mid fifties, when, the economy, the young economy started facing problems during these problems. a party, was formed following the communist mentality, a communist philosophy, which was gaining momentum at that time.

02:00 - the, I'm talking here about the bath party, who took over the country, around 1964 and created, a communist state where private ownership of production, facilities prohibited and only the state that owns everything and distribute the wealth of the nation. this worked okay for the 1960s and seventies because, of the revenues from oil, support from Gulf countries, which meant, infrastructure projects were being accomplished, education

02:39 - and health services was available for everyone in the country. This didn't last, until, it didn't last long. By the 1980s, things started, showing problems. This mentality or this philosophy, this economic system, definitely started showing problems, for example, coordination problems, because state planning commission looking after all the state owned enterprises running all the businesses in the country lacked all the,

03:10 - that they needed information that private businesses have. They didn't take, they didn't look at quality, they didn't look at customer services. all these principles that you find in the private sector, this led to the collapse of state owned enterprises, especially the country didn't develop export capacity to gain foreign currency to import products, which are not possible, which were not possible to be produced in the country at that time.

03:36 - So the state owned enterprises were collapsing, falling, apart without the capital needed to, import needed support or technologies that could update these. By that time became what became an old fashioned factories add on top of this lack of incentive, among employees in the public sector. And, for example, the incompetent managers of state owned enterprises who were appointed for political reasons.

04:06 - They were, for example, part of the party and then appointed as a manager without any industrial background. They didn't have idea about human resource management, marketing, et cetera. All these problems among others led to the collapse of the economy until, by the end of the 1990, the period you've mentioned, when the government started realizing, discount, move on without reform of the current climate system, we can't continue

04:36 - and we can't make the country, the economy, recover without help of private sector. So at this stage, the state started thinking of a way to collaborate with the private sector, gain some support from the private sector, allowing them to operate in some, industries where, private investments or private ownership was prohibited in the past. What I refer to in the paper, the gradualist approach or the incremental approach

05:03 - where the government was thought, we'll try to get some help. We keep our mentality will keep our ideology alive, which is the communist ideology, but we will get some help from the private set sector. Unfortunately, this way of thinking, without a serious commitment to market-based economy, you can't get any meaningful results. And obviously the, the, the, the economy didn't achieve the desired outcomes.

05:30 - By 2004, the government in Syria, the bus party itself realized that a major reform is needed. Actually this, they are sayings about this like this way of, we are in and out at the same time. It didn't work. They needed to be either in or out, and definitely in is more important to be part of the market-based economy, commit to that type of economy is became An, significantly important

05:59 - for recovering the Syrian economy. And that's why they decided in 2004 to transition completely to a market-based economy with an emphasis on social, support, some like principles that they could borrow from the socialist system, if you like. I think that take us to the 2004 period, you asked about definitely the communist, economic policy in every context proved to be flawed, proved to not work for all the reasons

06:35 - I explained before. So the transition definitely is needed and was needed at that time, and was needed also in every country because at the moment in in the world, you, you can't think of one or two countries still following this mentality. I can't think of any countries apart from North Korea that's still following the fully communist, mentality. Apart from that, this, this economic system that was, that split the world half by half

07:06 - with the market-based economy during the 1960, now in the seventies, now disappeared, and only one country exists. So definitely that, that the transition was needed. And it is a good step ahead, and you could witness this whether in numbers that because the economy was recovering maybe at a lower rate than what you, than what what you would expect. Because as I said before, either because of the lack of commitment to economy

07:32 - or the gradualist approach that the government decided to move towards in order not to change the count, the country, in, in a big bang approach that was followed by, for example, Poland when they decided during the late eighties and early 1990s when they decided to move to market-based economy. And it's more similar to the approach that was followed by China and Vietnam moving gradually toward market-based economy.

07:58 - So is it good? It's definitely, a good step and people on street started noticing this because to be able to provide job opportunities and overcome the challenges I mentioned with the communist economy, you need a dynamic private sector to absorb un the unemployed, workforce, the young for workforce in the, in the market and state owned enterprises cannot employ everyone. If they employ everyone, they give them low salaries,

08:26 - they end up irate. Which what happened actually, at, during the eighties and the nineties, many people would move to Gulf countries and look for jobs because in Syria, the, the income was low. and it is not good for the state owned enterprises themselves because when you give the employee job security, 100% job security with low payment, if they work or they don't work, they get the salary, they have the job security,

08:50 - they will not take care of the facilities. The public facilities became the property of everyone, but the property of no one at the same time. And that's, that's something would not, doesn't do well to state on enterprises. And this practice proved to be wrong in all these communist countries. The choice to move to graduates approach even after 2004, it's sometime hard to interpret because it could be a wise decision

09:19 - because the government, as I said before, didn't want to jump into the big bank approach, to move and because that's will cause a shock to the economy. and high rate of, unemployment, which might not, the country might not be ready to absorb. so it might be a wise thing. It might be, related to the nature of the economy, the, to the political system, and the ruling pass party in the country

09:49 - and the, the, the, the the need to keep things in control and not to lose things out of control. If you, if you like, similar to other post-communist countries that followed such gradual approach in order to make sure they still design the economy to move in a certain direction, which is different from the countries that allow the economy to move in different directions without intervening in what are the industries that are needed in the economy

10:19 - and what industries that are not. So the design and the control of how the economy should move might provide the justification or explanation for, for the gradualist approach, but also it could be, the consequences of the Big bang approach that prevented the government at that time from moving towards, the, market based economy in a quick pace. the conclusion is that I, I, I will put it this way. I have many years ago, maybe four

10:54 - or five years ago, read a piece of work by the key authors in the field talking about the concept of transition economies as a topic that is now irrelevant or something that is now expired. The, the idea of transition economies now ended and we, we should move on and took look at something else. And I would strongly disagree with this because again, if we go to the root of the transition economy, the meaning of transition economy and economy

11:24 - that could move in any direction from centrally planned economy to a market-based economy, from a market-based economy to a different type of market based economy. Any change in the philosophy behind the economy in the country can label the economy as a transition economy. And it's worth the studying it because it has implications on business activities in that context.

11:46 - So I believe any transition in an economy worth looking at to make sure we understand the business responses to these transitions and what are the implications on that, context. I'll give you an example. For example, we have all witnessed the Arab ing in the Middle East. that interrupted actually the Syrian transition after 2004. The plan was to move, as I said, from 2004.

12:13 - it started, in a more serious commitment to market-based economy until 2011 when the, conflict, started in Syria and interrupted the whole plan. And the government moved from funding the, or planning the economy to funding the, army and the conflict, in Syria. This is now a transition in the philosophy, of the government, about the economy. Same things in Egypt things, same thing in Tunisia and other Arabic countries

12:44 - or other Arab countries where the Arabs are bring, caused the change in the system there. This would have changed in the political system. This would have changed the, philosophy, the economic philosophy behind the country economy. And all these changes would lead to a transition in policies in institutions, which are the rules of the game in any country. And we need to understand how this transition affect businesses.

13:07 - So it's an ongoing topic that I don't think would die at any moment because it's always happening. And economists or countries and governments continuously for any reason might change their philosophy behind or the philosophy of their, the economy in their country. And it's worth investigating and investigating their impact on businesses.

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