Mike Butler: Syria needs liberal capitalism, not missiles

Syria needs liberal capitalism rather than missiles, according to analysis printed during the week in The Telegraph in London. Allister Heath, who is editor of City A.M., a digital daily business newspaper distributed around London, writes in his weekly Telegraph column:

The economic backdrop to the Arab Spring debacle and now Syria’s barbaric civil war is equally self-evident. With only a small number of exceptions, states in the region have long specialised in economic failure of the most abject kind, seemingly competing to become the most shocking case study in how to squander oil money, ruin a nation’s economy and keep ordinary people impoverished.

Syria’s GDP per person is just US$3289 (NZ$4231) a year, an abysmally low number; it is no coincidence that it is almost identical to Egypt’s, another country where a small ruling class has mastered the art of kleptocratic exploitation. Add to that a despotic political system, high and rising food prices, a youthful population with little hope of fulfilling its dreams – including many underemployed graduates – and well-organised extremist movements and you get a predictably explosive cocktail.

Heath writes that there have been plenty of explanations for the dismal failures of economies in the region, with the blame put on geography, culture, oil, insufficient foreign aid, the colonial and Ottoman Empire legacies. But Israel and the United Arab Emirates – have done much better by opening their economies.

The best explanation of what is going wrong in Syria and why the Arab Spring has turned into a bloody winter, according to Heath, can be found in Why Nations Fail: the Origins of Power, Prosperity and Poverty, by United States economists Daron Acemoglu and James A. Robinson. This book argues that countries can be divided into two broad groups, depending on economic and political structures.

The first, small but fortunate group of countries includes Britain, other Western economies and countries such as Australia, New Zealand, Singapore, South Korea, Japan and Botswana. These nations have in common something that is far more important than their differences: inclusive economic institutions that encourage and incentivise the vast majority to take part in freely chosen economic activities that make the best use of their talents, skills and interests.

Such benign economic institutions include secure and well-respected property rights; a good, reliable and trusted system of law and order, upholding the sanctity of contracts; a decent infrastructure; a sound and supportive regulatory framework for markets; low barriers to entry that allow individuals and firms to enter new markets and compete with incumbents; and access to education and economic opportunity for the great majority of the public.

These economic institutions are buttressed by equally inclusive political institutions of a sort that allows widespread participation from the public and imposes careful checks and balances on politicians. The only revolutions that ever succeed in sustainably improving a country – such as the Glorious Revolution of 1688 in Britain and especially the Bill of Rights, or the reforms in South Korea that started in the 1960s – are those that establish such inclusive economic and political institutions.

By contrast, Heath argues, the second group of countries, which include Syria, Egypt and all of the other failed states globally, have been saddled with what Acemoglu and Robinson describe as extractive political institutions. These are deliberately designed to grab the incomes and wealth generated by the economy for the benefit of a small elite and are buttressed by equally extractive political institutions which have handed all the power to these same few, with limited or no checks and balances and no rule of law. In these countries, the best and often only way to get rich is to have good connections and to exploit the power of the state to crush competitors.

Supposedly private firms don’t stay ahead because they provide the best products but because they have friends in high places, are able to ensure that laws and red tape keep out competitors and pay bribes to grab all the best contracts. Most depressingly of all, the elites don’t have an incentive to change.

Bashar al-Assad’s barbaric exploitation of his people is a deliberate strategy to maximise his own power and wealth and that of his associates: he needs some economic growth but doesn’t have any incentive to unleash the creative destruction of proper free-market capitalism, which would disrupt the status quo, threaten his power base and eventually destroy him. Syria’s mass poverty and lack of opportunity is thus a feature of the system, not a bug; informal grassroots businesses are no match for the corporatist oligopolies at the top of the pile.

If an embrace of liberal capitalism, the dismantling of monopolies, an end to privileges, and the introduction of constitutionally limited government is required to solve Syria's problems, it appears that United States president Barack Obama's intention to lob a few missiles at the regime won’t make much difference.

Source: Syria needs liberal capitalism, not missiles, The Telegraph, September 7, 2013. http://www.telegraph.co.uk/finance/economics/10284077/Syria-needs-liberal-capitalism-not-missiles.html