It’s the Economy, Stupid

Lebanon

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In assessing the state of the country, at this critical juncture, there is a need to emphasize the importance of placing the economic aspirations and needs ahead of the politics. In fact, for Lebanon to be on a true trajectory of prosperity it should elevate the debate from the confessional distributions and redistributions of the pie, to the development of the economy. The major themes have so far been political. There is almost a fixation on elections, and this is totally understandable, but is it the endgame?


The priority for developing countries, in this day and age, is the ability to attract and maintain capital investment and to attain a degree of economic growth that alleviates fiscal and social imbalances. Where is Lebanon in that framework? It is not enough just to reshape the political landscape and take a broom to Syrian occupation (but it’s a start). The current political stalemate belies an inherent unwillingness of the political players to come up with solutions and face the true problem of Lebanon: its economic performance. The key to the future of Lebanon is its GDP, not in how cleverly crafted the next election law is. Prosperity is the only guarantee that sectarian extremism thinking will fade, and that Lebanon can draw on the strength of its expatriate community as well.

A pivotal legacy of Mr. Hariri was his constant focus on the economic priorities. The revamping of the infrastructure, though criticized by many, was inevitable and founded, rightly or wrongly, on spurring growth through tourism. The helmsman has gone is that we may be in a political spiral.

Getting priorities straight

Despite GDP most likely contracting, the biggest issues seem to be political which seems odd. Yes, the proper holding of elections is crucial not only to respect the will of the people, and to reflect the reshuffling of political poles post 2/14, but also to boost confidence by investors in Lebanon’s political process and cast aspirations in a more long-term light.


Syria is out, and though its influence will probably linger on for some time, it will be less of a drain on Lebanon economically. From there, we will need to find a pax economica. Now that the risks of actual armed conflict having been reduced, the main focus of attention will be the level of commercial activity and the economy’s ability to generate social peace: erasing corruption and reducing the burden of the public sector. Then what? The fighting for a slice of the pie will not matter a jot if the pie itself is miniscule and in years to come it will be the economy that will shape politics, not the other way around.

Most pundits are obsessing on how a better political environment will lubricate the economic engine. This is counterintuitive. Think about the generation that took the streets. Eventually, do they really care more about the politics or their destiny as a prosperous and vibrant society? We are entering a period where the opinions of non-sectarian portion of the economy will matter most.

And given their aspirations, they will demand a meritocracy, and will probably get it. Lebanon’s identity is built on its commerce, its banking and its openness. And these conduits of prosperity require a political agenda based essentially on promoting the economy and restoring fiscal balance.

The rebalancing of deficits will inescapably require a reduction of the size of government, its role in the economy’s fortunes, and a shifting of resources from the public sector to the productive sector. And herein lays the contradiction of Lebanon right now. All focus is on the politics, where it should be on the economy. There is in a sense a need to de politicize life in Lebanon. All current politics, and this despite the inebriating mass unity on the streets, is sectarian and divisive, and this is why it will not survive. It falls short of the aspirations of the educated elite and it goes against the process of change sweeping across the region.

The domino effect from the fall of Iraq will no doubt have repercussions for many years to come, and Lebanon is best positioned in the region to monetize this change both economically and socially. It has the best arsenal of human resources, one of the most vibrant and successful diasporas, and will have soon the most democratic system.

It will not be painless, but we are heading straight toward it. But it is crucial to set out an economic track and not be engrossed in the political system. The new political order will be shaped by the level of prosperity we achieve.

The price of failure in reviving the economy and reducing government would be too devastating to even contemplate and it is vital to work toward boosting collective purchasing power and overall wealth to defuse the confessional time bomb. If the economy plunges further it creates a Petri dish for tensions between communities. One of the overlooked and under analyzed aspects of all wars, especially the Lebanon one is the economic backdrop. We hear of foreign interference, of internal disharmony, when reading about the war, but little is said about the one major catalyst: poverty and class tension and this is what will drive political reform.

Time for a change

Anything short of seismic change toward a meritocracy will be seen as a failure by most. It must be led by the private sector and see a reduction of the size of the public sector. There is no other workable formula. High unemployment and poverty are typically mirror images of the same sequence of symptom and cause. The experience of the past decade in developing economies has demonstrated that the high priority of economic reform and privatization of inefficient public entities is key to long-term efficiency and job creation. Yet this effort, which initially leads to job cuts, is frustrated by the absence of alternative job creating mechanisms, which creates a vicious circle that does not augur well for the future.

What is needed is a private sector framework with public sector support and participation to inculcate a culture of venture capital as an effective means for job creation, accelerated growth, and enhanced innovation and competitiveness in Lebanon. We need to see a structure and a process triggered by which limited investment capital can be combined with entrepreneurial skills to break through the vicious circle of economic stagnation and public sector inefficiencies by laying a foundation for job and wealth creation.

The Gulf is a great example of economics triumphing over politics. The political systems there are slow to change but the role and size of government have been reduced and the promotion of the economy has been given top priority. This is not to say that Lebanon emulate the static monarchies of the Gulf, simply a reminder that after the current spasm of over politicization of the process in Lebanon, mouths have to be fed and it would be meager consolation if we “fix” representation in parliament but build it on the back of economic depression.

 

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