Private sector between protection and competition

Dr.Khaled ABDELNOUR

Abstract

To attain a flourishing market economy, it is not sufficient to abolish centralized planning nor government monopoly. The state must intervene to correct deficiencies and regulate the optimal allocation of resources, the tradeoff, and the social equity.

The logic of "the market is all" has failed (the Washington Consensus failure is a good proof) as well as the logic of "the state is all". Therefor, as shown in South-East Asia, the best solution resides in the integration of both of them. When applying this new logic, Syria must consider the following:

1. The private sector is an economic actor, which must take the major responsibility of development. The public sector must focus on important services, productive projects and indispensable public goods as well.

2. The private sector can invest in projects similar to those currently owned by the pubic sector.

3. Private and public sectors can work together in services and productive mixed projects.

4. The state and the public sector have to support the private sector through big projects contracted with foreign sides by obliging them to subcontract with the private sector.

Under protectionism, the private sector was featured by:

· Private share represented two thirds of total investments in 1992-1993, then, it decreased to 40% in 1997-1998.

· Private commercial deficit attained 62.5-75% during 1992-1998.

· Private sector share in the Added value of manufacture increased from 52.5% in 1995 to 73% in 1997.

Under protectionism system, private sectors enjoyed fewer risks and almost realized profits as big as rental incomes. Despite these advantages, this system is criticized because of the preponderance of the consumption industry (limited to the last stage in the technological chain), lax, negligence of research, development and maintenance, lack of training, decrease of quality, lowering private industrial exports and finally deter the private sector from real entrepreneurship.

Government did not proceed to get rid of these obstacles, it preferred managing the crisis. It contributed in the complexity because of:

· The absence of clear strategy

· The increase in production costs due to hike in the prices raw materials manufactured by the public sector, to the increasing customs tariffs, to the lack of industrial credits (2.5% of total banking credits), to the absence of export financing and to the underdeveloped banking system.

When private sector moves to the competition, it will face several challenges:

1. Its underdeveloped industries (depending on imported components) and others which lack support and comprehensive rehabilitation

2. Degradation in Syrian balance of trade.

3. Endeavors to obtain the minimum of investments

4. Inequity between Syrian economic actors and Arab and European peers

The development of Syrian investment environment necessitates:

1. Establishing integrated industrial zones supplied with infrastructure services necessary for investment

2. Human resources with an adequate reform of educational system

3. Developing the banking system (restructuring the commercial bank and establishing a mixed business bank etc.)

4. Active government administration (obvious strategy, legislation, active jurisdiction).

5. Establishing a committee to promote investment (comprehensive economic database, preliminary and final feasibility studies, avoiding cumbersome bureaucracy)

The genuine partnership between the state and the private sector is a vital issue. It supposes the integration between the quality of state performance on the macroeconomic level and the good performance of private sector on the microeconomic level.

In his comments, Mr. R. SEIF mentions that the private sector role became marginal after the nationalization in 1961 and 1965. The myriad of laws and decisions has practically transformed this sector into a handcraft one. Due to these circumstances, this striving sector to survive has developed new ways to cheat and to conceal its activities. Despite its increasing size, this deformed sector still suffers because of new challenges imposed by mutations in local, regional and international economic structures. These tumultuous circumstances have been partly compensated by local market monopoly under protectionism, which allowed him to restore all parasite costs, considerable wasting and little return.

But, things have been changed because:

1. Local purchase power shrank,

2. Products of Arab free trade zone submerge the Syrian market while Syrian products are unable to penetrate those markets,

3. International competition provoked an industrial crisis leading to huge stocks and shrinking profits

Figures show that the total inter-Arab investment received by Syria is 436 million dollars in the period 1982-1998, meanwhile Syrian investments in Arab countries approximate 1.3 billion dollars.

Mr. SEIF pretends that protectionism is harmful to the economy. Real protection resides in equal competition among local products in order to improve production processes, to keep industrials faraway from extortion and release them from fear. The budgets of education and research and development must increase. Companies must be supported to introduce developed technology. Industrial zones are indispensable as well as credit facilities, and active fiscal system.

He disagrees with the effectiveness of mixed sector because it contains the disadvantages of both sectors, writes Mr. SEIF. It is time to objectively analyze every public economic company in order to support it, to transform it into a shareholding company, or to close it with a fair compensation to the employees. The alternative solution is in creating an environment apt to drain savings and funds to shareholding companies capable to work within complete transparency and managed by real competence, as before nationalization where markets were opened to all goods. Syrian goods exports represented 26% of national income in 1956. But now, despite protectionism, they do not exceed 6%.