The SixSixFour
Liberalism is the solution!
The current multifaceted crisis engulfing Lebanon has reinforced a very dangerous political and economic trend that could have disastrous effects on the future of Lebanon’s Liberal economic model. Many politicians, especially those riding the wave of populism, have been feeding their supporters a readymade scapegoat: blaming the liberal model for all Lebanon’s problems[1].
They consider the open free market, the liberal educational system, the private hospitals, and the entrepreneurship spirit of the Lebanese people to be the cause of all the country’s problems. They have been calling for adopting a closed system based on industrial and agricultural self-sufficiency, supported by larger government institutions, public intervention in the market, and five-year plans that impose subsidies and high tariffs. They also call for ‘going east,’ away from the US and Europe free markets towards China, Russia, and Iran[2].
Thus this article, the first of a series, will argue that Lebanon’s liberal model is not only a successful and fair system, but it is the ONLY way forward, and Lebanon needs even more liberal policies, as it has been lacking in several sectors.
- Lebanon’s liberal model
A growing narrative wants to obfuscate Lebanon’s economic history and how its liberal model, focusing on individualism, entrepreneurship, the free market, and minimal government interference, made it a unique and prosperous oasis of economic and personal freedom in the Middle East. Indeed, during its golden age, from the early 1960s till 1975, Lebanon became a top tourist destination, the centre of the region’s banking, education, and health sectors, where the largest multinational organisations and corporations had their regional headquarters[3].
Lebanon flourished due to its favourable business environment, supported by a talented and dynamic young, multilingual workforce, state-of-the-art infrastructure, renowned universities, and top-quality healthcare facilities[4]. Additionally, Lebanon took pride in its small yet innovative agricultural and industrial sectors.
After the civil war, Prime Minister Rafik Hariri tried to resurrect the same formula. It did not work as well as it could, considering the regional upheavals and the constant tension with the neighbours. There were two main issues: the Syrian army’s presence and the constant scuffles with Israel. Thus, the country could not attract the necessary foreign investments, a problem compounded by endemic corruption and inefficiencies. Thus, debt mounted, and it took several international aid conferences (the famous Paris I, II, and III) to keep the system afloat. Then from 2005 till 2019, the system was practically deadlocked, with few changes, and the strains, problems, and debt increased until it all exploded in 2019.
- 2019 crisis
Since 2019, Lebanon has been in the midst of a “deliberate depression,” suffering from a severe multifaceted economic meltdown.[5] Indeed, the World Bank pointedly warned that “Lebanon’s financial and economic crisis is likely to rank in the top three, most severe crises episodes globally since the mid-nineteenth century.”[6] This has happened on top of a worldwide pandemic with catastrophic consequences and a devastating port explosion that destroyed several districts of Beirut. The Lebanese currency has lost over 90% of its value, dropping from 1,500 to 100,000 LBP to the US Dollar, while inflation hit a 240% high.[7] People’s wages are worthless, and the crisis is still ongoing and has reached catastrophic proportions. According to the World Bank, Lebanon’s economy shrunk by 10.5% in 2021, in addition to -25.9% in 2020 and -6.9% in 2019. The protracted economic crisis has led to a marked decline in disposable income. GDP per capita dropped by 36.5% between 2019 and 2021.[8] Meanwhile, more than 45% of the Lebanese population has fallen under the poverty line (defined as receiving less than 3.1$ per day), with 22% being considered below the extreme poverty line, while the jobless rate has soared.[9]
However, the dwindling purchasing power of the citizens, and the rising inflation, have pushed most of the Lebanese to look for cheaper locally produced alternatives. In turn, this has encouraged many local food producers in the agricultural and agro-industry to ramp up production and even open new lines and factories. Unfortunately, it is an opportunity that is slow to materialise, faced with many hurdles, like the multiplication of currency exchange prices, subsidies, and the lack of basic infrastructure such as electricity, the Internet, and transportation[10].
Such a course of action will not flourish under the heavy-handedness of the public sector and government decrees. It needs the liberal entrepreneurial spirit of the Lebanese people, with support from foreign and local donors, to create small and medium enterprises in various sectors. Moreover, with the lower labour cost in Lebanon and its trilingual and highly educated population, the country has a golden opportunity to act as a hub for remote work and long-distance support and creation (IT, new technologies, AI, administrative support.) As long as the government and the public sector do not overregulate and overtax these burgeoning efforts[11].
- Current situation and future outlook:
Thus, more freedoms and liberal policies are the only way forward since before the civil war. This has become even more pressing and needed in the current crisis. Lebanon has always been considered a beacon of liberal economic policies in the region, but it is still beset by monopolies, both private and public, especially in the main infrastructure sectors.
This becomes even more important when we consider that one of the main causes of the current crisis and impediments to innovation and doing business is the lack of infrastructure from electricity, telecommunications, Internet, and transportation.
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- State Monopolies
Significant state monopolies exist in all the electricity, telecommunications, Internet, and transportation sectors, stifling the market and stopping modernisation and innovation. Meanwhile, these three sectors have witnessed the most private innovation and entrepreneurship worldwide. In Europe, for example, it is possible to change electricity providers as if you are changing your sim card. Meanwhile, public transport companies are multiplying their new ideas, that not always work, but that is the beauty of the free market. When an idea fails, others are brought forth to succeed, and the cycle continues.
Even worse, in the early 2000s, the Lebanese government took over both private mobile telecom companies and closed the market to any private investment. This pushed Lebanon from a pioneer in telecom adoption and model in the early 1990s to a backward country with a sclerotic telecommunication sector suffocating from exorbitant prices and no innovation.
Thus, the marketplace should be opened, and all these monopolies should be broken up and privatised. This article should further discuss this point below.
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- State stifling innovation
Rather than trying to foster a liberal economic model energised by unbridled innovation, the Lebanese state has been looking into blocking any new initiative that might threaten the established political/economic elites. For example, the beginning of the 2019 crisis is always linked to the ‘brilliant’ idea of taxing WhatsApp because the government telecom revenues were dwindling as more and more people were using the service rather than the over-expensive state telecoms. Similarly, the state has recently revived its public transport system rather than privatise it. Although this scheme has been time and again tried before and it always fails. The donated buses from France will soon break down for lack of maintenance, and the driver (government employees that face no consequences or rewards based on their performance) can’t be bothered to show up to work! Moreover, the state has also started limiting private transport innovations like Uber, as it came under pressure from the old taxi model.
In short, privatisation, unleashing the market forces, and the untapped entrepreneurial and innovative spirit of the Lebanese is the only way forward.
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- Ease of doing business
Starting a company or NGO in Lebanon still takes countless days, bribes, and jumping through many hoops. Meanwhile, it literally takes a few minutes of online clicking to launch one in Dubai with the benefit of getting a free residency permit. In Lebanon, opening a new bank account, taking a loan to start a new business, or even opening a new Internet account became almost impossible.
As previously mentioned, there is a golden opportunity to transform Lebanon into an innovation and IT hub of the Middle East during this crisis. But without infrastructure and the ability to start businesses and find funding, the opportunity will fall by the wayside like many others in Lebanon’s history!
Open public data, e-government, and the ease of doing business should become the mantra of all Lebanese public institutions.
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- Central Bank Independence and Transparency
Another critical issue hindering Lebanon’s recovery is the heavy-handedness and opaque measures deployed by the Central Bank. Moreover, the accusations and legal proceedings around the Central bank governor have squandered any trust left in the critical public institution and the banking sector that are at the heart of the IMF recovery plan for Lebanon. The Central Bank’s operations should be utterly independent of any political interference. At the same time, it should be entirely transparent to withstand the highest level of scrutiny and public and private oversight. Indeed, it is no longer acceptable to have more financial engineering hat tricks, a Sayrafa platform that no one knows how it operates, or lumping all Central Bank obligations under a mysterious budget line called other obligations[12]!
The Central Bank should fully disclose its budget in full detail, using a machine-readable format to enable all financial institutions to be overview the necessary information to allow for more investment and level the playing field by removing any hints of insider knowledge and trading[13].
Finally, the central bank should open up the banking sector, float the Lira, and allow investment in all sectors rather than limiting the banks to finance the real estate sector and encourage the development of a cryptocurrency sector. Indeed, Lebanon has all the necessary attributes, skilled labour, and a liberal mindset to become the cryptocurrency capital of the region!
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- Privatisation
One of the main problems that led to the current crisis is the large inefficient public sector, overburdening the economy and the state budget. There is an urgent need to minimise it and restructure it. Indeed, according to varying estimates[14], the electric sector has caused 24 to 41 billion dollars in losses. Thus staying true to liberal ideals, one of the government’s first decisions is to start a comprehensive privatisation program, starting with the energy, telecoms, and transportation sectors[15]. Indeed, privatisation will drastically lower state budget expenditures, open many sectors to competition, encourage billions in foreign investments, improve services, and lower consumer prices.
Of course, it is critical to mention that any large-scale privatisation program should adhere to the highest international standards of transparency, open bidding, and competition, and public and private oversight should be adhered to. Otherwise, public monopolies would just become private monopolies without solving any of the endemic problems.
- Conclusion:
During the pre-war period, Lebanon was considered an oasis of liberalism, but only when compared to its neighbours and the rest of the Arab world. In today’s world, Lebanon can no longer rely on relative freedom. It needs to start a series of urgent and profound liberal reforms in most sectors to increase its competitiveness and unleash its people’s entrepreneurial spirit. Therefore, to launch a constructive debate on the need for more economic freedoms in Lebanon and to defend the country’s liberal roots, FNF is launching this series of articles that will tackle the myriad subjects that have been presented above, and others such as Open data, AI, and e-government, from a liberal perspective, offering concrete policy recommendation and practical solutions!
Finally, during this region’s tumultuous history, a rallying cry was regularly brandished under different forms: from “Islam is the solution” to “Arab unity is the solution” and many others. Thus, it is time to modernise this slogan and say, once and for all, that “Freedom is the solution”!
Für die Freiheit
[1] Hasan Nassrallah head of Hezbollah is at the forefront of this trend https://www.almanar.com.lb/8938206 , and so is Gebran Bassil head of the Free Patriotic Movement
[2] Following the Iranian model, https://fanack.com/ar/iran/economy-of-iran/historical-development-and-potential/
[3] Post-War Lebanon: Women and Other War-Affected Groups (International Labour Organization, 1997, p. 122 p.)
[4] Nasr, S. (1978). Backdrop to Civil War: The Crisis of Lebanese Capitalism. MERIP Reports, 73, 3–13. https://doi.org/10.2307/3012262
[5] World Bank (2022), Lebanon’s Crisis: Great Denial in the Deliberate Depression, https://www.worldbank.org/en/news/press-release/2022/01/24/lebanon-s-crisis-great-denial-in-the-deliberate-depression
[6] https://www.worldbank.org/en/country/lebanon/publication/lebanon-economic-monitor-spring-2021-lebanon-sinking-to-the-top-3, p.21
[7] https://blog.blominvestbank.com/43040/lebanons-inflation-rate-reached-2…
[8] https://www.worldbank.org/en/country/lebanon/overview
[9] https://documents.worldbank.org/en/publication/documents-reports/docume…
[10] https://www.thinktriangle.net/risks-potential-lebanon-productive-economy/
[11] The Lebanese government tried to tax all local employees that are paid in dollar up to an exorbitant 25% flat tax.
[12] https://www.thenation.com/article/world/lebanon-financial-collapse/
[13] https://www.economist.com/finance-and-economics/2020/11/05/deconstructing-the-lebanese-central-banks-ponzi-scheme
[14] https://www.aub.edu.lb/ifi/Documents/publications/research_reports/2020-2021/20211020_unbundling_lebanon_electricity_sector_research_paper_pdf.pdf
[15] https://www.lcps-lebanon.org/articles/details/2467/privatization-in-times-of-crisis-exploring-options-for-lebanon%E2%80%99s-telecom-sector