The participation of the private sector in decision making is
an essential prerequisite for sound policies. This is because
it leads to policies that are compatible to the private sector
needs, reduces uncertainty in government decisions and fosters an
environment for investments. One factor attributed to the growth in
East Asia is the deliberation council, through which businesses and
government ministries and agencies discuss, debate and design policy
that is relevant to the economic sectors. In a 1997 World Bank
study, 48% of firms in South and South East Asia participated in decision
making compared to 30% of firms in the Middle East and North
Africa (excluding Lebanon), 28% in Sub-Saharan Africa, 17% in
the Commonwealth of Independent States and
16% in Central and Eastern Europe.
To what extent do Lebanese firms participate
in decision making? At first glance, it is
expected that involvement of firms in policy
making would be high. After all, Lebanon is a
private sector-based economy that avoided the
trap of statist or socialist policies that confounded
its neighbors for some time. But the
reality is in fact quite different. A survey of 250
firms conducted by the Lebanese Center for
Policy Studies in 1998 found out that only
16% of surveyed firms are involved in policy making
in one way or another. This is a lower level than firms in other Middle Eastern countries and even in Sub-Saharan
Africa. It seems that economic policy making is often done
in a vacuum with little involvement of the private sector.
A closer look at survey results shows more revealing findings.
Although just 12% of industrialists and 13% of agricultural firms have
participated in designing policies, 80% of the surveyed banks did
affect policies. Consequently, the banking sector has been performing
very well since the end of the civil war. Its record is fairly obvious:
a high growth rate of 23% in assets, 46% in shareholders’ equity in
1997, while deposits to GDP now stand at 170% (exceeding that of
developed countries), total assets to GDP of 200% (higher than high-income
economies). No sector can match the record achieved by the
banking sector. Hence, what makes the banking association — the sole
representative of banks — more effective in influencing policy making
than other associations? Three factors are at play.
The first factor is attributed to the importance of the sector in the eyes
of policy makers. Sectors that are considered to be compatible with the
beliefs and ideology of politicians for whatever reason tend to perform
better than other sectors. Hence, it is no surprise that the banking sector
— which is considered to be a pillar of the economic system in
Lebanon — has always enjoyed certain privileges. Before the establishment
of the banking association in 1959, the government had already
passed the Banking Secrecy Act. Later, it institutionalized the importance
of the association by requiring the central bank to consult with
the association on matters related to the sector. After the end of the civil
war, the government again placed the banking sector at the core of its
vision. The central bank and the banking association worked closely
together to modernize the sector. On the opposite side of the spectrum
lie industry and agriculture, which the government does not
consider to be crucial economic sectors. Hence,
the demands of their respective associations were either ignored immediately or met on an
ad hoc basis to avoid any escalation or tension.
Neither the policy makers of the independence
era nor those of the post-civil war period
have given these two sectors any significance.
The second factor that has affected the relationship
between the state and associations is
the financial leverage the former has had on
the latter. For instance, the banking sector
played a crucial role in financing the government
deficit. This was particularly important just after the end of the civil war when foreign
lending was not available. The banking sector bought 90% of
government T-bills. No other business association could match the
leverage that the banking sector had.
The third variable is the quality of the associations. Here I refer to
the objective, size, level of representation, dynamism and the activities
of the association. Business associations that have well-defined
goals representative of their sectors, are financially resourceful and practice
democratic rules in elections tend to be more effective. Again, the
banking association is a case in point. It has clear goals, represents all
the banks in Lebanon, has a relatively high budget, which allows a larger
scope of activities, and conducts elections every two years.
The absence of an accountable political system that would have
allowed the associations to lobby ministers and members of parliament
makes their work harder. However, until then, some work
needs to be done to the internal structure of the associations. Are
they ready to meet this challenge? That’s not clear.
