Home Economics & Policy Strategizing a small deprived country in global context

Strategizing a small deprived country in global context

Changing geopolitics and an uncertain global economy leaves a country like Lebanon in an unknown 2023

by Thomas Schellen

Lebanon this year did not get off to a great and happy start in policy making. Neither on the micro-level of this small country on the edge of the world’s politically most volatile region, nor as part of the larger levels of regional, geo-economic and geopolitical concerns. In the few weeks since the beginning of this year, judicial “reform” plans in Israel have shocked the peoples of this region with reminders on the human capacity to deny their fellow human’s dignity and safety in the name of “security and democracy.” A few hundred kilometers to the north, the earth itself, the vital foundation of our existence that we have proven ourselves a species capable of altering, defacing, and eroding, has reminded us that we cannot truly predict shifts and tremors, let alone control quakes and protect ourselves effectively against the mass destruction of lives and livelihoods.

In Europe, the logic of arms races and violent confrontations is kicking the collective butts of supposedly enlightened, peace loving, post-industrial knowledge societies. On the global stage, military threats, manipulation of elections, fake alien rumors, and – evidently a scourge of not just the past but all ages – real existing wars, appear more menacing and closer in early February 2023 than one year ago. And to make exception from the political litany of this generation, let’s not yak and yammer about climate risks today; it is too warm a winter for pushing out more hot air in hollow debates and impotent protests.

And the economy is…

The global economy, the collective total of scarcely productive and too often consumptive enterprise give-and-take within the species, is not independent of these risks and bad realities. Not at all. So it is only logical that the Global Economic Prospects (GEP) report of the World Bank, January 2023 issue, eloquently phrased by one or more speechwriter(s) (nowadays one has to ask, or chatbot?) on behalf of current World Bank President David Malpass, speaks of the poorer parts of the global community in the report’s Foreword: “Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change.”

Reading farther into the GEP, the picture does not get any rosier, especially not for the smallest players in the global economy. “The setback to global prosperity will likely persist,” reads the report’s Foreword and Executive Summary, predicting that GDP levels in emerging-market and developing economies (EMDEs) by the end of 2024 will be about 6 percent below what had been expected in more optimistic outlooks just prior to the pandemic. No convergence of income levels between developed and developing countries are expected in the next two years, and median income levels, moreover, “are being eroded significantly—by inflation, currency depreciation and under-investment in people and the private sector.” 

As gross investment in EMDEs is unlikely to suffice for maintaining capital stocks, critical financial resources will be pulled away from EMDEs because of financial market logic but also due to government demands in developed economies. Development and climate objectives will be “harder to meet” – irrespective of the questions if these objectives ever were realistic, or sufficient, or serious. It is almost reminiscent of the local scenario that the primary prescription for the malaise are reforms, reforms, and reforms. 

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On the wisdom and predictability of the leading financial engineers in the world, the GEP concedes that “central banks around the world have been tightening policy faster than previously expected. Monetary policy tightening in advanced economies, a strong U.S. dollar, geopolitical tensions, and high inflation have dampened risk appetite and led to widespread capital outflows and slowing bond issuance across EMDEs,” and somewhat sheepishly admits that, given substantial uncertainty about the impact of central bank policy in terms of both magnitude and timing during the conditions of high inflation and repeated negative supply shocks: “Risks to the growth outlook are tilted to the downside.”

GEP outlooks for the Middle East and North Africa region – at 3.5 percent GDP growth projection in 2023 and 2.7 percent in 2024 – are healthy by comparison with regions such as Latin America and the Caribbean, but the World Bank warns that “spillovers from the rest of the world are a major risk to the region’s forecast.” It adds gloomily that the region is “still characterized by widely divergent economic conditions and growth paths, high levels of poverty and unemployment in many countries, low labor productivity growth, elevated vulnerabilities, and fragile political and social contexts as the global economy faces a heightened possibility of falling into recession.” On a side note of some weight, it finally deserves to be mentioned that the Global Economic Prospects report omits GDP development data projections for four MENA countries, namely Libya, Syria, Yemen, and Lebanon. 

Conventional insights into de-globalization 

Offering much advice that is easier to vocalize than realize, the GEP says that the international community needs to ramp up support to displaced populations and the millions who are affected by conflict or food insecurity. To struggling governments, it says, “In responding to food and energy shocks, governments need to avoid imposing export restrictions and instead attenuate the impact on the poor through support measures targeted at low-income groups. The international community also needs to reduce the risk of debt crises in EMDEs, including by supporting timely debt restructuring.”

Apart from underwhelming investment outlooks for EMDEs stated in the GEP, geopolitical and geo-economic shifts have moreover lately been favoring state interventionism and trade protectionism, from the search to shorten supply chains, to massive governmental finance allocation and America-first economic nationalism under the guise of inflation fighting. The cost-benefit ratios of such programs, as noted for example in a recent commentary by the Financial Times’ star economic commentator Martin Wolf, are questionable even for the developed countries that are pushing them under their self-interested agendas, while at the same time it is quite sure that the small, embattled economies of the global precariat of nations will not have any wins. 

A January 2023 paper by 12 authors at the International Monetary Fund (IMF) actually discusses this issue to moderate length. Under the inspiring title “Geo-economic Fragmentation and the future of Multilateralism,” the paper starts from the premise that in the era after the Great Recession earlier in this century, the world experienced geostrategic, political, and economic pressures that impacted the path of globalization in the 2010s. Those anti-globalization shifts were in recent years further exacerbated by the Covid-19 pandemic and Ukraine conflict. This phenomenon of geo-economic fragmentation (GEF) is presumed to be costly, with possible losses of globalization gains for consumers and workers, such as reversals in the reduction of poverty within and between countries, lower capital and investment flows, and repercussions for cross-border movements of labor.

Although the paper acknowledges that some countries may actually reap sectorial boons from economic fragmentation, writing that “fragmentation may entail strategic advantages for some countries in selected cases,” it calls fragmentation to be “very likely to involve significant economic costs in the aggregate.”  

Estimates on the costs, however, vary widely and appear to depend on modeling, economic theories, and political ideologies more than empirical knowledge. “Depending on modeling assumptions, the cost to global output from trade fragmentation could range from 0.2 percent (in a limited fragmentation/low-cost adjustment scenario) to up to 7 percent of GDP (in a severe fragmentation/high-cost adjustment scenario); with the addition of technological decoupling, the loss in output could reach 8 to 12 percent in some countries,” the paper says. 

It recommends in sight of these untested models and outlooks for geo-economic development to adapt “the rules-based multilateral system” – including the international trade and monetary systems – to the world’s changed realities. The risk of runaway fragmentation has to be averted, the authors warn, although they concede that a resurgence of the multilateral consensus of the previous era is not likely. 

Gloom to the weak

TO GO WITH AFP STORY BY NATASHA YAZBECK A Lebanese bank employee counts money at a bank in Beirut on July 21, 2009. Lebanon’s new government has yet to see the light, but its financial inheritance is already set: a public debt expected to top 50 million dollars by the end of the year. AFP PHOTO/JOSEPH BARRAK

In all these complex assumptions two things seem clear: the risks of interventionism in the current era are unknown and widely underestimated, and the downside potentials of GEF are massive. This is the case, even though historic manifestations of such downside potentials have abounded ever since the rise of the more vulgar of European mercantilist ideologies commenced in the 1500s. Trade protectionism and tariffs have dragged the world economy down in the past, as scholars (including the authors of the IMF GEC paper) famously and regularly point out in their studies of the Great Depression and the impact of the Smoot-Hawley Tariff Act of 1930. 

The second near-certainty – also highlighted in the conclusion of the IMF GEC paper – is that protectionism is going to penalize today’s global precariat of underdeveloped nations that desperately need freer trade and advancements of productivity in their bets to recover from the damages brought by the global impacts of pandemic, war, and self-serving interventions of powerful states. 

In this geo-economic mess, can a small and economically stressed country even hope to instigate any viable countermeasures against this confluence of downsides that are damaging it today and look to keep holding it back for the next few decades? And if the prospect of pursuing a contrarian and global power players decoupled economic policy is not already in and by itself a gamble for any small country like Lebanon, what is the value for stakeholders in the economy of such a country if they strategize for development on the level of their industry or company if there is no working support system on the national scale? 

Asking such questions is pertinent, especially based on the knowledge that efforts to strategize for better development of any Lebanese sectors in the real and services economy in more than three years have not met with the needed success. Not asking such questions in the increasingly difficult geo-economic environment of 2023 would moreover be both dishonest and disingenuous for a publication such as Executive Magazine, which has over five years advocated for many policy measures of strategic nature in the editions of our Economic Roadmap and continues to do so in this year’s. 

Contrarian answers

The first, and briefest response to such questions is that there is no alternative to wide, cross-sectorial strategizing efforts by engaged stakeholders. Lebanon has no economic strategy, a fact that is evident in state dealings with public goods since the onset of reconstruction and development in the 1990s, the intervening years of debt-funded provision of public goods, and in the failure to start working towards their provision in the three years since the collapse of state services.

The energy and electricity “file” of state failure as provider, regulator, or facilitator of the public good of electricity is the prime example. Lebanon cannot expect delivery of an economic strategy from its political administration even at times when such a strategy is a survival need. Without more diverse and committed strategizing, Lebanon will only stumble even more desperately in the dark. Economic and societal stakeholders need to strategize for public and private goods and for what has been described in a moral context as the universal common good of all, citizens and society, which is secured when personal rights and duties are maintained. 

The second answer is linked to the evolution of human behavior and systems. The old dichotomies of rulers and ruled, labor and capital, state and market, self-interested individual and public-minded official are fading fast. Technology, innovation, information, and knowledge are the determinants of societal, organizational, group, and individual profitability. 

Past capitalist epochs’ deterministic roles of class, gender, and age in the division of labor – one of capitalism’s enduring fundamentals – are replaced by complexification and convergence of conscientious stakeholder capitalism and responsible public governance in global organization of the necessary striving for the common good. 

There are no a priori insignificant contributions to strategy even at the smallest level. As everything impacts everything in the worldwide economic-ecological-social meta-system, constant strategizing and responding to data has become an inescapable need on all levels from the international to the hamlet.  

On the local level, as documented in a small example by this magazine’s recent investigation of Lebanon’s food sovereignty, interdependence, and security, strategizing for public goods of water, transport, and energy (priorities in the Executive Economic Roadmap under pillar 2) nowadays cannot be separated from increasing the productivity of and enabling the agro-industry and hospitality sector. This means that in the current scenario of interconnecting global and local crises and challenges, strategizing food for Lebanon means delving deeper into the entire Roadmap and intensifying the collaborative discourse over a national economic strategy. 

The third argument for the importance of more strategy efforts by Lebanese stakeholders in society and economy is that continuous improvement of the strategy and plan are imperative. The longer the collective discourse on strategy persists, the more it will ascertain what concepts are viable and what approaches are not working and have to be augmented or changed. Strategizing in continuity will embolden efforts for sustainable economic development, enhance visibility of societal needs, and allow the discovery of blind spots in previous thinking. 

Precondition for this progress in the strategy effort is that the collaborative and consultative process is intensive and regular. In this sense, the primary value of the Economic Roadmap is not the large number of recommendations. It is not the coverage of many sectors, nor the diversity of references to cognitive predilections from building to enabling, strategizing and combat. The Roadmap’s intrinsic value is its process, consistence and interactivity, with consultative openness. 

Over the past iterations of the Roadmap, it has become evident that the number of implemented policy proposals has not been substantive and the degree of continual interaction has not been perfectly intense. Yet tracking of progress, however shy, and non-ideological, affords a non-conspiracy-tainted view on the status of the country to stakeholders engaging with the Roadmap. Defunct are the previous, incomplete paradigms of Enlightenment-induced economic growth at the peril of disastrous social costs. The simple truth is that the stakeholders to the Lebanese enterprise have no recourse but to strategize the present and future from within their own mindful resources. There are no working recipes for solving humanity’s challenges to be derived from past economics theorizing and there are no ready-made recipes that can fix or even reinvent the Lebanese economy and social contract. 

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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