Understanding the Roots of the Economic Crisis and Its Future Implications"

Prepared by: MAJD IMRAKJI, PhD Researcher in Law

February 2025

There’s a question that comes to everyone's mind: Why do prices keep rising day by day despite the absence of obvious reasons for it? Especially in countries suffering from instability in their national currency, where there’s confusion in economic opinions regarding the causes and solutions that can be adopted to reduce prices!

Economists often attribute the rise in prices to demand or supply, forgetting that there’s a hidden force continuously boosting inflation. Even if there’s a balance between supply and demand or if demand is lower than supply, it violates the economic rule.

The issue might become clearer when viewed from another perspective, and it could be the real cause behind the economic crises we face today. This phenomenon is called structural inflation.

Have you heard of it before?

Have you heard of this type of inflation? This kind of inflation does not result from market fluctuations in supply and demand or from a temporary shortage of imported resources meant for direct consumption or used in local manufacturing. Rather, it’s much bigger than that; it’s a deep-rooted problem that permeates the economic structure itself, leading to price increases without justification and making traditional solutions ineffective in addressing.

If you notice continuous price increases with no clear justification, and the usual solutions no longer seem effective, it’s time to understand the real cause behind it all: structural inflation. This is a serious challenge that threatens our economic and social stability — it's not just a matter of numbers or economic indicators on paper.

In this article, I will attempt to shed light on how structural inflation works, how it differs from other types of inflation, and how it can affect your daily life, with a particular focus on its real-world application in Syria, which is suffering from this inflation especially.

But before we dive into the details of this concerning phenomenon, it is essential to first distinguish structural inflation from other types of inflation that might impact our economies, so we avoid confusion or mixing them up and present the issue in an academic manner.

There are six types of inflation that I will present to you:

1.???? Cyclical Inflation:

This type of inflation occurs as a result of fluctuations in the business cycle, such as expansion or contraction. Cause: It happens when demand for goods and services increases due to rapid economic growth or improvement in consumption. When demand exceeds the economy’s ability to produce, prices begin to rise. Characteristics: Cyclical inflation is usually temporary and declines as economic growth slows or stringent monetary or fiscal policies are applied.

2.???? Demand-Pull Inflation:

Definition: It occurs when demand for goods and services exceeds the economy's ability to meet that demand, resulting in price increases. According to traditional theory. Cause: The increased demand for goods and services leads to higher prices due to a supply shortfall. This often happens during periods of strong economic growth, when wages rise, and market confidence increases. Characteristics: It is often linked to periods of strong economic growth where wages increase, and consumption rises.

3.???? Cost-Push Inflation:

Definition: This happens when production costs increase, leading to price hikes. According to traditional theory. Cause: An increase in the prices of raw materials (like oil), higher wages, or the imposition of new taxes on businesses. Characteristics: This type of inflation usually impacts sectors that rely heavily on raw materials, such as energy or heavy industries.

4. ???? Imported Inflation:

Definition: Occurs when a country imports goods and essential materials at higher prices, which leads to rising prices within the local economy. Cause: This type of inflation is driven by rising prices of imported goods, especially if those goods are vital for the local economy, such as oil, foodstuffs, and luxury goods. Characteristics: It happens in countries that rely heavily on imports, where an increase in the prices of oil or other essential materials leads to higher production and transport costs. The shortage of foreign currency and the onset of economic barriers to protect savings from foreign currencies may also contribute.

5.???? Monetary Inflation:

Definition: Occurs when too much money is pumped into the economy, increasing demand for goods and services and causing prices to rise. Cause: Excessive money supply growth (through an expansionary monetary policy, such as lowering interest rates or printing more money) leads to an increase in liquidity available for consumption, which in turn leads to inflation.

Characteristics: Monetary inflation is typically the result of central bank decisions to increase the money supply excessively. This is usually resolved through raising interest rates and implementing traditional financial measures such as increasing taxes.

The Hidden Force Behind Continuous Price Increases

6.???? Structural Inflation:

Structural inflation is a type of inflation that cannot be explained by temporary fluctuations in supply and demand or monetary policies. It results from long-term structural imbalances in the economy, such as market monopolies or productivity disparities between economic sectors.

Elements of Structural Inflation:

• Productivity Gaps: Disparities in productivity between sectors lead to higher prices in certain industries due to unfair competition and authorities’ interference in hindering competition.
• Monopolistic Structures: The control of major companies over the market allows them to raise prices without restraint, and this is one of the main reasons we can directly feel in the market.
• Labor Market Imbalances: Structural unemployment or a skills gap that affects productivity.
• Institutional Factors: National economic policies that maintain an inflexible economic structure in defense of local industries, while imported goods flood the market without setting clear standards for quality, price, or competition. The product is priced high, knowing that no competing product can be imported unless its price exceeds double its basic market value through taxes and restrictions.
• Consumption Trends: Increased demand for certain goods or services due to cultural or social changes, often resulting from manipulation of supply and demand to make goods rare or scarce, thereby artificially inflating their market value.
• According to the six models mentioned above, we find that monopoly is the main cause of structural inflation.

So why monopolies? Why are large companies the reason for endless inflation?

• Price Control: Large companies can raise prices as they wish because they dominate most of the market, with no real competition to limit their power.
• Decreased Innovation and Productivity: In a market dominated by a few companies, there is no real pressure to improve efficiency or innovate. Large companies flood the market with the same products without introducing new options or improving quality.
• Impact on Supply Chains: Large companies may control several links in the supply chain, which increases production costs across various sectors. This leads to higher prices throughout the economy.
• We need to ask ourselves: Does this sound convincing to you?

In fact, it’s a subject of debate! Monopolistic structures are not just about reducing competition, but they are a hidden force that raises prices artificially and increases pressure on the middle and lower classes. These companies do not care about consumers or even the national economy. All they care about is maximizing their profits at your expense, relying on weak oversight or political protection in the beginning, in addition to other legislative and financial causes.

To clarify the matter, let’s compare the impact of structural inflation on the Syrian economy.

Syria has recently suffered greatly from structural inflation; a phenomenon that existed even before the drastic political changes it experienced. The Syrian economy was plagued by complex structural imbalances that deeply affected the purchasing power of citizens. These imbalances contributed to creating an environment devoid of sustainable reforms, causing inflation in some sectors to experience continuous rises amidst clear market imbalances and monopolistic structures.

Today, as Syria attempts to rebuild a modern state, it must carefully identify the economic mistakes of the past and understand the significant harm these imbalances caused in the long term. This will help them learn how to reform these structures for building a more sustainable and growing economy.

The main reasons for structural inflation in Syria can be attributed to:

1.???? Labor Market Imbalances: The ongoing conflict has led to the displacement of millions of citizens, resulting in a severe shortage of skilled labor. This has coincided with rising unemployment in unskilled workers.

2.???? Decreased Productivity: The destruction of infrastructure in vital sectors like agriculture and industry significantly reduced local production. This shortage in local production made Syria increasingly reliant on imports, raising demand for foreign currency and putting pressure on local prices, further exacerbating inflation due to currency fluctuations.

3.???? Reliance on Imports: As local production capacity dwindled, Syria became more dependent on importing essential goods, making the economy vulnerable to global market fluctuations and increasing living costs.

4.???? Monopolies in Local Markets: Syria saw a domination of large companies in vital markets such as energy, food, raw materials, and even agriculture, allowing these companies to impose high prices on Syrian consumers and increasing inflationary pressure in the market.

5.???? Proven Theory: The four previous elements were practically proven through a drop in prices by over 50% within just one week after large monopolistic companies stopped controlling the supply of goods, following the fall of the political system that protected them, despite the absence of any positive intervention in the markets or reforms. This is a tangible and sufficient real-world proof to confirm the validity of the theory.

Now, after presenting the problem, the question is:

?How can we address this issue?

Addressing structural inflation requires an approach different from the traditional solutions applied in many economies. Rather than focusing on policies like adjusting interest rates or cutting government spending, structural inflation calls for deep-rooted structural reforms across several economic sectors to achieve long-term stability. The most important measures include combating both commercial and production monopolies, simplifying customs regulations and fees, and making commercial activities accessible to everyone without restrictions. Through this, companies or large corporations can no longer manipulate the market and control it, as the large number of competing companies forces them to enter the real market and reduce profits to defend their market share or create one.

In fact, this issue is not limited to that, but rather through building a comprehensive strategic plan with specific, measurable, flexible goals that can be applied to reality to gradually address the problems, ultimately reaching a sound and sustainable economy in theory, which can become practical.

In conclusion, I would like to emphasize that this issue requires in-depth study, along with the application of solutions that have proven effective in other countries facing structural inflation. We must adopt solutions that are tailored to the unique economic situation of each country facing this phenomenon, in line with its specific challenges."