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The Syrian Regime's Business Backbone

[Image from unknown archive] [Image from unknown archive]

Nearly one year into the Syrian uprising, with more than 7,500 Syrians dead, the protracted conflict is not very well understood or reported despite a deluge of writings. Most track fast-moving events without pausing for sober analysis of Syrian politics and society. Early on, the dominant argument was that the regime would quickly collapse; later, it has been that the regime is durable. The long view rarely appears. When it does, alas, it most commonly adduces timeless cultural factors, chiefly sectarianism, to explain the apparent stalemate.

No single factor is the secret to understanding the causes of the uprising or its prospects. There is, however, one basic, stubborn truth: The regime has thus far remained unitary and cohesive, while the society is heterogeneous and, to some degree, divided. Naturally, the regime has worked hard over decades to reproduce and exacerbate the divisions, whether of sect and ethnicity, class or region. The regime has meanwhile labored to bolster the unity at the top, building an army and security services whose fates are intertwined with that of the regime. But what is consistently missing from analysis of Syria is another such stratagem: Beginning in the 1970s, the regime has forged networks of capital that bind elite business actors to state officials as the latter, and their offspring, venture into the commercial realm. These ties have paid dividends in times of crisis, both in the past and in the present. [i have argued this at length elsewhere]

After coming to power in 1970, Hafiz al-Asad reached out to conservative big businessmen, who were centered in large cities, particularly Damascus and Aleppo, and had been badly weakened by the wave of Baathist nationalizations in the 1960s. The links originated in conversations at the state-run Chambers of Commerce and Industry, and became bilateral, as the regime paired up with select businessmen with substantial capital, key expertise or relations with foreign companies. These businessmen came from diverse backgrounds. Some belonged to the old bourgeoisie, the merchant class that had dominated Syria’s politics in the 1950s, and others were ascendant figures associated with public-sector ventures that had benefited from the oil boom after 1973. Most of these businessmen had operated in the shadow of the state, bidding for tenders from the public sector, but other new entrepreneurs were recruited as the networks mushroomed.

The rapprochement bore political fruit in the late 1970s and early 1980s, when the regime faced a revolt led by the Muslim Brothers. Asad had enacted a series of policies that harmed the interests of the Brothers’ cadre and constituents in the traditional suq (market) and other small traders and artisans.

In essence, the state had decimated the modest traders’ business with the products of large, state-owned enterprises subsidized by Arab Gulf countries amid the post-1973 oil boom. These factories spread across the country and caused especially profound resentment in the conservative Sunni quarters of Syrian cities, where the regime was already seen as repressive and (because it was headed by ‘Alawis) heretical. Making matters worse was the deal offered to a “troika” of men who, under the state’s watchful eye, were allowed to launch the first large-scale private business ventures in the Baathist era. The troika was composed of Sa‘ib Nahhas, Uthman al-‘Aidi and ‘Abd al-Rahman al-‘Attar. Their bargain with the regime became the model for state-business partnerships, escalating tensions between the state and small business owners with Sunni Islamist leanings.

The confrontation with the Muslim Brothers lasted for more than six years. Urban Sunni merchants privileged by the state according to the troika model fell in with Hafiz al-Asad. Badr al-Din al-Shallah, then president of the Union of the Syrian Chambers of Commerce, assured Asad in a historic 1982 meeting that the big businesses whose loyalty he commanded would stand by the regime. The regime proceeded to beat back the uprising in the northwestern city of Hama, where at least 15,000 residents were killed. The brutal tank and artillery assault on Hama proved to be a lasting defeat for the Brothers. It also welded the future of Shallah and his peers to the fate of the regime.

After 1982, the informal state-business partnerships continued to flourish. Big businessmen got a variety of special privileges, including commissions for projects in the public sector, tax exemptions and trade protections for certain goods. The partnerships matured in the late 1980s and came to exercise disproportionate influence on economic policy. The salient institution was originally called the Guidance Committee, a body made up of state officials and “private” businessmen tasked with devising economic policy over and above the committees that drafted nominally socialist five-year plans. “Private” had acquired a new meaning because many of these businessmen were themselves state officials or their relatives or partners. With makers and “takers” of policy staffing the same enterprise, or sometimes inhabiting the same corporeal frame, corruption in economic policymaking hit an all-time high. In the 1990s, the nucleus of this scheming was the office of Prime Minister Mahmoud al-Zu‘bi. Most state officials who went into business opted for quick profit, which guided them in the direction of trade, rather than industry, and toward urban, rather than rural, areas. Along with many others, the Zu‘bis prospered mightily, as did the Khaddams (‘Abd al-Halim was then vice president) and the Tlasses (Mustafa was then defense minister), running car dealerships and hawking upscale consumer products. The new magnates, notably Rami Makhlouf, the nephew of the president’s wife, also got high returns from tourism, free trade zones and, later, telecommunications.

By the late 1990s, the business community that the Asads had created in their own image had transformed Syria from a semi-socialist state into a crony capitalist state par excellence. The economic liberalization that started in 1991 had redounded heavily to the benefit of tycoons who had ties to the state or those who partnered with state officials. The private sector outgrew the public sector, but the most affluent members of the private sector were state officials, politicians and their relatives. The economic growth registered in the mid-1990s was mostly a short-lived bump in consumption, as evidenced by the slump at the end of the century. Growth rates that had been 5-7 percent fell to 1-2 percent from 1997 to 2000 and beyond.

After Bashar al-Asad succeeded his father in 2000, the architects of Syria’s economic policy sought to reverse the downturn by liberalizing the economy further, for instance by reducing state subsidies. Private banks were permitted for the first time in nearly 40 years and a stock market was on the drawing board. After 2005, the state-business bonds were strengthened by the announcement of the Social Market Economy, a mixture of state and market approaches that ultimately privileged the market, but a market without robust institutions or accountability. Again, the regime had consolidated its alliance with big business at the expense of smaller businesses as well as the Syrian majority who depended on the state for services, subsidies and welfare. It had perpetuated cronyism, but dressed it in new garb. Families associated with the regime in one way or another came to dominate the private sector, in addition to exercising considerable control over public economic assets. These clans include the Asads and Makhloufs, but also the Shalish, al-Hassan, Najib, Hamsho, Hambouba, Shawkat and al-As‘ad families, to name a few. The reconstituted business community, which now included regime officials, close supporters and a thick sliver of the traditional bourgeoisie, effected a deeper (and, for the regime, more dangerous) polarization of Syrian society along lines of income and region.

Successive years of scant rainfall and drought after 2003 produced massive rural in-migration to the cities -- more than 1 million people had moved by 2009 -- widening the social and regional gaps still further. Major cities, such as Damascus and Aleppo, absorbed that migration more easily than smaller ones, which were increasingly starved of infrastructural investment. Provincial cities like Dir‘a, Idlib, Homs and Hama, along with their hinterlands, are now the main battlegrounds of the rebellion. Those living in rural areas have seen their livelihoods gutted by reduction of subsidies, disinvestment and the effects of urbanization, as well as decades of corrupt authoritarian rule. The Tunisian and Egyptian uprisings motivated them to express their discontent openly and together.

There have been no significant defections, however, from the ranks of big business, at least not in Damascus and Aleppo. It is not just presidential blood relatives like Makhlouf who have remained loyal. Other major players hailing from the above families have stood firm by the regime, financing its orchestrated mass rallies and public relations campaigns, as well as helping to float the Syrian currency. Most malcontents limit themselves to spiriting capital out of the country and expressing private wishes for regime change. Those who do back the uprising do it quietly and extremely carefully, highlighting the fealty of their counterparts.

The moguls know very well that their fate is bound up with that of the regime by virtue of intertwined investments and also their years of self-enrichment at regime behest. To switch sides would thus be an enormous gamble on the opposition’s forbearance. Big business’ support is not solely responsible for the regime’s resilience, but it would have been difficult for the regime to hold out in Damascus and Aleppo had these monied interests explicitly thrown their lot in with the protesters. The regime-business alliance took shape over decades, and it is unlikely to snap until the very last moment. Public defections by big businessmen would be a fair indicator that the regime’s days are numbered. Until then, all eyes are on the battlefield.

[This article was originally published in MERIP

2 comments for "The Syrian Regime's Business Backbone "

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"with more than 7,500 Syrians dead" said WHO? London-based Qatari-bankrolled body?

lidia wrote on March 23, 2012 at 12:39 PM
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let me highlight that is it more like 10,000 dead plus many more wounded, and over a million displaced and hungry souls. i attribute the lack of defections, believe it or not to the meager salaries and food they receive + certain prosecution of the family memebers if the defector escapes punishment. Brutal regimes render what we have hoped would lead to the denouement of the Assad more difficult. As you say, public defections by businessmen is what is needed, these are also scared of collective punishment from Assad today, and from whoever comes after Assad tomorrow: stalemate resulting in the destruction of the Syrian economy.

burhan wrote on March 24, 2012 at 02:20 PM

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