Syria

ROLE OF GOVERNMENT

A suspension footbridge over the Euphrates River at Dayr az Zawr

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Figure 9. Government Expenditures by Sector, 1985

Source: Based on information from Syria, Central Bureau of Statistics, Statistical Abstract 1986, Damascus, 1986.

During the rapid economic development preceding and following independence, government played a minor role. Expansion resulted primarily from private sector investment in agriculture and industry. Although the economy grew rapidly, benefits were not shared equally. Many people's incomes were very low, and most of the rural population lacked amenities; electricity, education, health care, and an adequate diet were available almost exclusively in cities and in a few towns. In the 1950s, disparities of income and social inequality contributed to the rise of political leaders favoring a much stronger economic role for the government, including some leaders who demanded state ownership of the means of production. Economic conditions, primarily the need for large investments in roads, ports, and irrigation, also required more active government participation (see Radical Political Influence , ch. 1).

Between 1958, after the union with Egypt, and 1965, a series of laws were enacted that resulted in progressive socialization of the economy. By 1961 the state had acquired control of the development of natural resources, and land reform measures had been introduced, although not effectively implemented. Also, a new economic plan that emphasized large public sector investments had been formulated and the banking system had been moved toward nationalization through what Syrians called "Arabization." In 1961, while Syria was still the junior partner with Egypt in the United Arab Republic, widespread nationalization was decreed, but Syria withdrew from the republic before completion of the nationalization measures (see United Arab Republic , ch. 1). Not until March 1963 did the socialist transformation make headway.

Between 1963 and 1965, a socialist economy was erected, although some laws enacted later extended and refined the public sector. In 1963 agrarian reform stripped large landowners of their estates and much of their political power, provided some land to landless farmers, and improved conditions for farm tenants and sharecroppers (see Agriculture, this ch.). In 1963 commercial banking and insurance were completely nationalized, and in 1965 most large businesses were nationalized wholly or partially. By 1966 the public sector included development of natural resources, electric power, and water; the bulk of industrial plants, banking, and insurance; part of transportation; and most international commerce and domestic wholesale trade. In addition, the government was responsible for the bulk of investments, the flow of credit, and pricing for many commodities and services, including a substantial part of wages.

By 1986 the situation remained essentially unchanged. As a result of these earlier measures, the government dominated the economy--accounting for three-fifths of GDP--and exerted considerable influence over the private sector. However, President Hafiz al Assad had liberalized the structure somewhat to encourage more private sector activity and investment. For example, the government relaxed exchange controls and permitted private traders to import more goods, although over 100 of the most important foreign commodities were still exclusively imported by state trading organizations. In addition, the government established six free trade zones where local traders and manufacturers could import, process, and reexport commodities freely. Also, private investment (domestic and foreign) in portions of manufacturing and tourist facilities was encouraged through such measures as tax exemptions and cheap credit. The post-1970 measures were more a rationalization of the economy to promote greater private sector development than a dismantling of government controls and ownership. As a result of these measures, the private sector dominated agriculture and retail trade and was important in light industry--particularly fabrics and clothing-- and construction, transportation, and tourist facilities.

Cotton, the country's most important export before 1974, provided an extreme example of government involvement in the economy. Areas put into cotton cultivation were controlled by government licensing of individual farmers. A government bank supplied the credit, most of which went to cotton farmers; much of the credit was in kind, with the bank purchasing, storing, and distributing the approved seeds, fertilizers, and other items. Government organizations purchased and graded the cotton, operated the gins and spinning mills, and marketed the products internally and abroad. The government established the price for cotton at all stages and subsidized prices for such inputs as credits, seeds, fertilizers, and fuel to run the irrigation pumps.

The effect on Syria's economy of the socialist measures of the 1960s was significant. First, there was a substantial exodus of trained personnel and capital from the private sector, a trend that continued in the 1970s, although the exodus was of a smaller magnitude and occurred for different reasons (see Industry, this ch.). The other major consequence was a rapid expansion of government responsibilities, even though the government had few trained people, limited funds, and inadequate organization and procedures. The political instability of the 1960s and the small number of trained people in the country further hampered development of effective organizations. Government services, including defense, became the main growth sector of the economy in the 1960s as people were added to the payroll, but effective expansion was slow.

In the mid-1980s, observers characterized the government and its activities as inefficient and excessively bureaucratic. Much of the criticism was caused by the continuing shortage of trained and competent officials. Part of the criticism reflected continuing deficiencies in organizations and practices. Government organizations were still trying to catch up with the huge additional responsibilities that had been imposed on inexperienced government personnel. By 1986, budgetary procedures and financial controls had steadily improved, but they were not as good as the situation required or as officials desired. Proposals for evaluations and implementation of projects were deficient, but progress had been made, and the government sought advice and help from outside experts for more improvements.

When the socialist transformation was taking place in the 1960s, the rationale was to promote economic development for the benefit of all. Although some direct redistribution of income occurred, redistribution was effected largely by way of pricing, subsidies, and tenancy legislation rather than by taxation, although in 1986 data were insufficient for a conclusive opinion. Although growth afforded job opportunities at higher incomes, it had the negative effect of attracting even more workers to already crowded urban areas. However, economic development did provide gradual improvement of living standards; considerable investments were made in roads, ports, schools, irrigation, and the Euphrates (Tabaqah) Dam that would facilitate future growth. Nonetheless, the economic wrenching of the 1980s restrained development; incomes of most Syrians remained low by world standards, and substantial income gaps between various groups persisted.

Data as of April 1987

Syria - TABLE OF CONTENTS