Interesting take on the Syrian situation and on the differences, in general, between functional and dysfunctional countries.
Ed http://www.telegraph.co.uk/finance/economics/10284077/Syria-needs-liberal-capitalism-not-missiles.html Telegraph.co.uk Thursday 05 September 2013 * Home * News * World * Sport * Finance * Comment * Blogs * Culture * Travel * Life * Women * Fashion * Tech * Dating * Offers * Jobs * Companies * Comment * Personal Finance * Economics * Markets * Festival of Business * Your Business * Business Club * Money Deals 1. HOME» 2. FINANCE» 3. ECONOMICS Syria needs liberal capitalism, not missiles Revolutions, wars and the emergence of totalitarian movements are rarely just about grand ideals, political philosophy or theological disputes. The economic backdrop to the Arab Spring debacle and now Syria’s barbaric civil war is equally self-evident Photo: Reuters By Allister Heath 4:31PM BST 03 Sep 2013 124 Comments Abstract ideas matter, of course, but economic forces are usually central to the violent upheavals that regularly tear apart human societies. Sometimes the economic factors are hidden but mostly they are glaringly obvious, as with the rise of Nazism, which followed the catastrophic Weimar hyperinflation of the 1920s and the German economic crisis of 1931. 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 $3,289 (£2,122) 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. There have been plenty of explanations over the years for the failure of almost all of the economies in the region, their dalliance with extremism and apparent inability to reform themselves. Some have blamed geography, others culture, yet more the “resource curse” that has been oil. Activists denounce insufficient foreign aid; others resort to various conspiracy theories; many cite history and the colonial and Ottoman Empire legacies. Yet none of these narratives convinces. Some Middle Eastern countries – Israel and the United Arab Emirates – have done much better than the rest by opening their economies; other countries in poor continents have broken free by reforming their economies and societies and unleashing economic growth, including Botswana in Africa. Clearly, no country anywhere in the world need remain a prisoner of circumstances or history forever; so why do so many fail to break free, or botch their transition, as Russia has done? Related Articles * Tens of thousands of Syrian refugees stranded on Jordanian border 03 Sep 2013 * Obama says military strikes against Assad will help Syria 'free itself' 03 Sep 2013 * Boris Johnson: MPs should 'think again' over Syria if US Congress backs action 03 Sep 2013 * First Syria rebels armed and trained by CIA 'on way to battlefield' 03 Sep 2013 * Mayor: UK should 'think again' if US acts 03 Sep 2013 * PM: 'No plans' for second Syria vote 03 Sep 2013 * Sponsored Using 4G to the max in the NHS The best explanation of what is going wrong in Syria and why the Arab Spring has turned into a bloody winter of discontent can be found in Why Nations Fail: the Origins of Power, Prosperity and Poverty, a fascinating tome by two US economists, Daron Acemoglu and James A Robinson, which ought to be on everybody’s reading list at the Foreign Office. The book, one of the best written on economics in recent years, has a thesis that is as simple as it is powerful. Countries can be divided into two broad groups, it argues, 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, 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 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. Instead, regimes across the region rely excessively on oil, remittances from expatriate workers and handouts from foreign governments – income flows that actually help perpetuate the extractive institutions. The poor have been the greatest losers. As Adeel Malik and Bassem Awadallah note in The Economics of the Arab Spring, published by Oxford University, the Middle East and North Africa account for less than 1pc of total non-fuel exports, against 10pc for East Asia and 4pc for Latin America. A few years back, one academic found that the region’s entire output of manufactured goods was less than that of just one Asian nation, the Philippines. It is difficult but by no means impossible to overthrow a well-entrenched set of extractive political and economic institutions. But merely replacing a dictator is not enough, as we saw in Egypt, where nothing substantive changed after Hosni Mubarak was ousted and where the army, which itself has vast commercial interests, has now regained power. The only answer is a complete economic, political and cultural transformation, including an embrace of a real, liberal capitalism, the dismantling of monopolies, a bonfire of privileges and the introduction of genuine pluralism and constitutionally limited government. None of this tells us definitively whether the West should intervene in Syria or not but it certainly confirms that merely lobbing a few missiles at the regime won’t be enough to make a real difference. Allister Heath is editor of City AM
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