Following Military Victory, Syria Plans Economic Reforms – Part II

Dear Readers:

We saw yesterday that the Syrian government is already busy at work planning for the post-war period.  Economic reforms and improvements are vital to the rebuilding of the nation after this extensive five-year attack against the Syrian people and infrastucture.

Syrian President Assad is greeted warmly by the Syrian Parliament.

Thanks to the cartoonish propaganda they are subjected to, day in, day out, most Americans probably don’t even realize that Syria has an actual government and a parliament, which debates such mundane questions as the budget.  Many probably believe that Syria is just some comic-book dictatorship where President Assad sits on his throne wielding a whip and making unilateral decisions about everything that goes on.  Mostly about the best way to barrel-bomb children and puppies into submission.

In reality, Syria is a Parliamentary type country, of the European model.  In which the day-to-day government functions are performed by an elected Parliament; and the President of the country acts as the Head of State and Commander of the Armed Forces.

This wiki page provides a current list of Syrian government officials and their party affiliations.  Yesterday we talked about Finance Minister Maamoun Hamdan, who is trying to patch together a working budget without imposing excessive taxation on the population.  I couldn’t find a wiki page or photo for Hamdan.  If you google his name, there are lots of other M. Hamdans out there (various spellings), but if you see a photo of a guy dressed in full Arab regalia and wearing a keffiyeh, that probably isn’t him.  As you can see from the photo above, Syria, like Lebanon, is visually a “European” country.  The nation’s officials wear suits and ties (or business dress for the women).

ISIS savages stone to death a Christian teenager.

Which again accentuates (and all of this is just my sidebar, not a part of Gafurov’s story) the horrendous irony of the European nations backing America’s vicious war against a secular Arab state.  Using, as cannon fodder, the most barbarously medieval Saudi-inspired sociopaths who could only be dreamed up by Hollywood producers looking to make their next grotesque “serial killer” movie, and debating among themselves, what is the cruelest way for our hero to dispatch his victims?

Europe claims to stand for its own traditions and values, and yet willingly enlisted in a Jihadist Crusade against an essentially “European” nation.  All part of America’s grudge-match against secular Baathists who happen to control oil and gas routes of the Middle East.

But returning to Gafurov:  Where we left off, Hamdan was objecting against imposing ever new and creative ways to tax working people; and trying to figure out the best way to use very tight funds to rebuild Syrian businesses and infrastructure.  The Syrian government’s Budget Committee is faced with very practical tasks, including cutbacks on administrative overhead expenses.  And, like every country in the world, a certain amount of money is lost to simple corruption.  The general consensus is that the Syrian economy is in bad shape, but is not in catastrophic shape!

Syrian Foreign Trade Minister Adib Mayyaleh

Foreign Trade Minister Adib Mayyaleh bases his plan to restore the Syrian economy on small and medium-size businesses.  During the past year, Syrian manufacturers and enterprises were allowed to import raw materials on their own, without going through the government.  This helped to stabilize the manufacturing sector by making sure it was supplied with the energy resources it needed, during this very dodgy era of war and sanctions.

Adib also proposes, as part of his plan, to work out export deals with “friendly” countries such as Russia.  Europe’s loss is Russia’s gain, since the Europeans apparently backed the wrong dog in this fight.

Syrian Banking Sector

The Syrian banking sector suffers from the same misfortune as its Russian counterpart:  Various factors, including international sanctions, have left it with insufficient means to issue substantial credits to enterprises.  In other words, there are no “deep pockets”, and every loan is risky.  On the other hand, Syria, like Russia, is rapidly adapting to this situation and coming up with various creative techniques to provide credit services to businesses and to properly insure investments.

Syrian Prime Minister Imad Khamis

A wide-ranging reform of the Syrian banking sector is already underway.  There is a mix of state-owned and private banks.  The proper “complementary relationship” between these two sectors is being discussed actively.  The administrative structures of the Finance sector lack an adequate amount of qualified employees needed to function.  Syrian Prime Minister Imad Khamis has called upon the government-sector banks “to take direct and decisive steps” to solve the problem of issuing credits, which are needed for restoration and development projects.  Parallel with this, new laws are being passed to deal with the credit situation and help to regulate this area of the economy.  A special project is in the works to legally liquidate, in stages, certain problematic debts.  All of this requires a re-capitalization of the banks.  The rules of trade and insurance arbitrage are also to be simplified. All of this is done with the purpose of stimulating the Financial Services industry.  But also invites certain risks, naturally.  But in a country which partially lies in ruins, rebuilding will not be possible without the joint efforts of the government, the private sector, and the consumers themselves.

As President Assad himself noted, in a speech about the transition from war time to economic development:  “The process of rebuilding, and the accompanying economic growth should not be left until the end of the crisis.  In reality, the goverment has already started to create all the necessary conditions which will further these goals and stimulate investments in these spheres.”

[to be continued]

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10 Responses to Following Military Victory, Syria Plans Economic Reforms – Part II

  1. Jen says:

    I would like to suggest that a perfect opportunity exists for Syria to reform its taxation system on the basis of collecting land rents (land value taxation) as the main source of government income, rather than rely on taxing the incomes of individuals, households and businesses.

    Rather than try to explain the advantages of land value taxation myself, I’ll just cut-n-paste excerpts from an open letter signed by prominent US and European economists addressed to Mikhail Gorbachev way back in 1991 (just before the coup against him) that urged him to adopt a taxation regime based on land value taxation.

    “… It is important that the rent of land be retained as a source of government revenue. While the governments of developed nations with market economies collect some of the rent of land in taxes, they do not collect nearly as much as they could, and they therefore make unnecessarily great use of taxes that impede their economies–taxes on such things as incomes, sales and the value of capital.

    Social collection of the rent of land and natural resources serves three purposes. First, it guarantees that no one dispossesses fellow citizens by obtaining a disproportionate share of what nature provides for humanity. Second, it provides revenue with which governments can pay for socially valuable activities without discouraging capital formation or work effort, or interfering in other ways with the efficient allocation of resources. Third, the resulting revenue permits utility and other services that have marked economies of scale or density to be priced at levels conducive to their efficient use.

    The rental value of land arises from three sources. The first is the inherent natural productivity of land, combined with the fact that land is limited. The second source of land value is the growth of communities; the third is the provision of public services. All citizens have equal claims on the component of land value that arises from nature. The component of land value that arises from community growth and provision of services is the most sensible source of revenue for financing public services that raise the rental value of surrounding land. These services include roads, urban transit networks, parks, and public utility networks for such services as electricity, telephones, water and sewers. A public revenue system should strive to collect as much of the rent of land as possible, allocating the part of rent derived from nature to all citizens equally, and the part derived from public services to the governmental units that provide those services. When governments collect the increase in land value that results from the provision of services, they are able to offer services at prices that represent the marginal social cost of these services, promoting efficient use of the services and enhancing the rental value of the land where the services are available. Government agencies that use land should be charged the same rentals as others for the land they use, or services will not be adequately financed and agencies will not have adequate incentive or guidance for economizing on their use of land.

    Some economists might be tempted to suggest that the rent can be collected publicly simply by selling land outright at auction. There are a number of reasons why this is not a good idea. First, there is so much land to be turned over to private management that any effort to dispose of all of it in a short period would result in an extreme depression in prices offered. Second, some persons who could make excellent use of land would be unable to raise money for the purchase price. Collecting rent annually provides access to land for persons with limited access to credit. Third, subsequent resale of land would enable speculators to make large profits unrelated to any productive services they offer, resulting in needless inequity and dissatisfaction. Fourth, concern about future political conditions would tend to depress offers. Collecting rent annually permits the citizens of future years to capture the benefits of good future public policies. Fifth, because investors tend to be averse to risk, general uncertainty about the future will tend to depress offers. This risk aversion is sidestepped by allowing future rental payments to be determined by future conditions. Finally, the future rent of land can more justly be claimed by future generations than by today’s citizens. Requiring annual payments from the users of land allows each year’s population to claim that year’s rent. While the proceeds of sales could be invested for the benefit of future generations, not collecting the money in advance guarantees the heritage of the future against political excesses …”

    Link to the entire letter:

    In short, the Syrian government should own all the land in perpetuity within Syrian boundaries, acting as custodian on behalf of all Syrian people and Syrian enterprises. It should never be sold to private interests. The beauty of this is that you avoid real estate speculation which leads to property bubbles which in turn make buying property, especially commercial and residential property, expensive for small businesses and people wanting to raise families, and which in the end benefits only large corporations and wealthy speculators with properties all around the planet. Land value taxation penalises property owners, especially those people who let land sit idle and/or who engage in property speculation, and for that reason it’s not loved by politicians (who are often major real estate owners), the people who fund their election campaigns, pensioner groups and Chinese investors who buy apartments for their offspring and let them sit empty in “ghost city” developments that are now the bane of China and other countries like Australia where the ghost city phenomenon has spread.

    Not so long ago I saw the film “The Founder” with Michael Keaton playing Ray Kroc (the fellow who turned McDonald’s into a global corporation) and the significant moment in that film was when he met J Sonneborn who told him to set up a real estate company with the McDonald’s name to buy the land where McDonald’s franchises could be established. The land would be leased to franchisees with the contract stipulating that franchisees could continue to operate as long as they adhered to the original McDonald brothers’ fast-food restaurant concept. This enabled Kroc to raise money to clear all his debts, ensure that future franchises obeyed the McDonald’s concept strictly and in the end allowed Kroc to take control of the entire McDonald’s business and philosophy away from the McDonald brothers, leaving them with nothing in the end. What a scumbag that Ray Kroc was!


    • yalensis says:

      Wow. great comment, Jen! I hope that governments should take your advice, because it sounds like you know what you’re talking about.


      • Jen says:

        There are a lot of great websites discussing land value taxation and its benefits. The benefits not only include better use of land for productive purposes but also a reduction of urban sprawl and the infrastructure to support urban sprawl that in a LVT-based tax regime might not exist (for that reason, lots of environmentalists love LVT) and a reduction in social problems like homelessness and certain categories of crime associated with neighbourhoods that landlords have allowed to run down. Theft, assault, rape and other crimes are much less likely to take place in busy neighbourhoods or places where there are lots of potential eyewitnesses than in buildings that are mostly empty.

        Of course there are those websites that criticise LVT and most of those are concerned mainly the impact LVT would have on elderly pensioners living on properties they have owned for decades and which over time have risen astronomically in price and value because the land around them has become more urbanised. In those cases payment of LVT could be deferred until the residents pass away or the properties are sold.

        A good website for Australian and New Zealand readers is Prosper Australia which is upfront about its aims to extend LVT in Australia and make it the base of a reformed taxation regime in Australia.


    • Cortes says:

      C’mon, Jen: classical economics like Michael Hudson advocates: taxing the rentiers…

      It’ll never take on….they hope.


    • Cortes says:

      PS: usual Spanish word for profitable is “rentable.”


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