So whatever happened to the Euro-Med partnership agreement?
And wasn’t Lebanon applying as an observer to the
WTO? After all, countries around the world have been integrating
through the flow of goods, services, capital and technology
across borders. Others have gone further by establishing trade
blocs, such as the North American Free Trade Agreement,
European Union or Asia-Pacific Economic Council. Developing
countries are under increasing pressure to liberalize trade. Many
are not enthusiastic because of the disruption it may cause,
whether social, fiscal or economic.
The effects of trade liberalization on Lebanon have not been
properly assessed. Those who oppose it cry that it will lead to
unemployment and economic stagnation. The proponents draw
a rosy picture of growth and a boom in export-oriented industries.
I haven’t seen any serious work that supports these scenarios.
Nevertheless, I will make the following propositions. First, integration
with world markets is a source of disruption and upheaval
as well as an opportunity for profit and economic growth. Take the
East Asian countries. They performed well in the last decades by integrating
their economies with the rest of the world. However, it is this
integration that led to the capital crisis in 1997/8. Being a small country
with the pro-free trade institutions, Lebanon will inevitably undergo
full trade liberalization. And globalization, whether we like it or not,
is here to stay. So the more pertinent question is not whether to globalize
but how to do so.
Dani Rodrik, a professor of international economics at Harvard’s
Kennedy School of Government, suggests that countries should complement
trade liberalization policies with an “internal strategy of institutional
reforms.” He argues that the strategy must have three
components. First, a country must improve the credibility of its state
apparatus. This means that Lebanon can no longer rely on sound
macroeconomic policies of low inflation and stable currency to attract
investments. In the 1950s and 60s, inefficient and corrupt bureaucracy
and weak government institutions went hand in hand with
investment and growth. This formula no longer applies. Investors
expect countries to have transparent and accountable institutions.
Moreover, the government must have an efficient judiciary to
resolve conflicts, lower transaction costs and increase economic
activity. These have become the new prerequisites for investment
and growth.
Second, a country must also improve the mechanism of “voice.”
That is, Lebanon can no longer make policies in a vacuum: the economic
and social actors must be included in the decision-making
process. Private sector participation in economic policymaking is
low, except for the banking sector. Moreover, the labor associations,
despite their internal weaknesses, have often been marginalized by
the state or broken up for political purposes. The government has
also failed to bring other civil society organizations on board, particularly
social ones, and support their activities.
The social safety net must be improved, because trade liberalization
will severely affect certain groups in the economy. The organizations
that provide social care in Lebanon operate in a vacuum, leading to
a duplication of efforts, according to Adib Ne’meh, a lawyer and a
consultant to the UNDP. More than half of the population does not
have social security. And the existing social service system is often
manipulated for political purposes.
Lebanon has failed to prepare itself for globalization. Time is running
out. Economic treaties will soon be put back on the table and
Lebanon will have to sign. Without an internal strategy, the costs of
globalization will be too high. Social tension will inevitably arise.
Frankly, these institutional reforms are good not only as a means to
face globalization, but also as an end in themselves. The question
remains: Why hasn’t the government adopted any of them yet?
