Home Leaders The vanishing space of political economy…

The vanishing space of political economy…

…and what it means for Lebanon

by Executive Editors

All individual and group-based economic activity – simply, all human economic activity – inextricably relates to the community or society that the individual or economic group is embedded in. This is the fundamental economic truth of every business entity; from the single tradesman, craftswoman and creative entrepreneur to the largest company, enterprise, or corporation. 

This fundamental economic truth is anchored in the human condition of being that old ζῷον πολιτικόν – a social and political animal. Secondly, it is a function of the microeconomic give-and-take by which humans sustain their material needs.

In the latter sense of a multi-tiered give-and-take process of production and exchange, all economic activity therefore involves not just conceptual antipodes of private property and public interests, but competing interests of interdependent stakeholders.

What do the Lebanese people receive in return for tax? Inadequate state services, creaking infrastructure, and the same old faces.

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One, in modern times very popular, method of harnessing economic energy is the state-owned enterprise (SOE). Unlike any intellectual musing about the correlation or juxtaposition of public and private in the economy, the SOE is a concrete, measurable expression of state involvement in economic activity. 

Constructed to function with political public good mandates in accordance with market rules, the SOE nonetheless ignites eternal questions over the just and productive design of the economy. 

As they appear in front of a polity, SOEs are corporate entities that are entrusted with providing services and goods in natural resources, or in provision of communication, information, electricity, transportation, finance and banking. These are sectors of vital importance in all countries, but particularly for Lebanon, where initiation of higher productivity is a matter of survival.  

Not only this, but good and affordable public services, like water, electricity, and infrastructure, are an indicator of economic prowess; placing a nation in a position of comparative advantage. Whereas on an individual level, consumers with extra disposable income boost the economy and help society function. Value and productivity are improved, and the cycle goes on.

A worldwide model?

The global trajectory of SOEs as enterprise models seems at first glance straightforward. The numbers point up ever since the days when the tides of monetarism, Reaganomics, Thatcherism, and the economic opening of China under Deng Xiaoping began to rise. As a 2020 research paper by the International Monetary Fund (IMF) notes, SOEs in the early 1980s accounted for 15 percent and 8 percent of economic output, in developing and advanced economies, respectively.

By the mid-2010s, the rise of SOEs was reflected in dazzling numbers. The share of corporatized SOEs, or state-owned enterprises managed according to corporate principles and aligned with profit motive, was expressed by SOEs holding $45 trillion in assets (equivalent to 50 percent of global GDP). Among the world’s 2,000 largest firms, SOE assets reached 20 percent. 

According to the findings of IMF researchers, very large SOEs have morphed into multinational enterprises, which control assets of entities in other countries. They often have mixed ownership and their multinational expansions can be driven by economic, and more divisively, political motives. Multinational SOEs have been popping up in China and other powerful developed and emerging countries, among them Saudi Arabia and the United Arab Emirates. 

However, the SOE equation is not as simple as the numbers suggest. It is clear that government moves toward mixed-economy models, characterized by public-private partnerships (PPPs) alongside the corporatization of SOEs, were received favorably by populaces at first, especially when compared with counter trends of socialization on the left, and full privatization on the right. 

But the mixed-economy way of PPP and corporatized SOEs has not been confirmed as the golden path. Over the past few years, the election choices of populaces and the economic programs of leaders on the right and left in both small and large emerging countries in Latin America, Africa, the Middle East and Asia, have shown this. Even the PPP track records in developed Europe cannot be called impeccable. 

As the IMF acknowledges, there is actually no clear and commonly accepted delineation of the SOE in the political economy. The hybrid beasts and public-private crossbreeds of SOEs and PPPs can – and in the ideal case will – combine public and private genes; like the publicly minded desire to deliver public goods and the business mind’s habit of optimizing efficiency. 

Or on the contrary, they can be deeply flawed and corrupted beasts which merge the destructive genes of political power-seeking with the hyper-aggression found in the most despicable private-economy predator. Moreover, in the context of recent geopolitics, the practical contradiction of SOEs unfolds in the fact that the SOE has become the pawn in a game of increasingly powerful national and border-transcending activities.

Poor management

The political economy, in the meaning of the state acting as economic power, has no prospect of disappearing. For the economic-collapse-and-aspiration-of-recovery setting Lebanon, the derivative question is if the country’s political economy can be restituted with the SOE as the winning model, or if the space for Lebanese political economy has disintegrated altogether. 

This is a result not only of the economic and monetary collapse which has wiped out, for the next few years at least, the possibility of selling SOEs for a fair price via any form of PPP or privatization. But also, the extinction-like event of Lebanon’s political economy has transpired in the populace’s total distrust in the state; its hitherto practiced bad and partisan management of SOEs, the exploitation of profitable sectors for fiscal gains (telecoms), and its failure to perform as a steward of anything involving money and mutual obligations. 

Practical solutions for managing Lebanon’s economic challenges are available; namely the strategic advantages of SOEs or PPPs, such as efficiency or competitiveness on a corporate and local level. But as long as there exists a mutual cycle of division their implementation will remain merely an ideal, while the smartest and most knowledgeable, who advocate for Lebanon’s rescue, remain adamant to assert that they do not see the issues as their opponents do, never mind the rationality of their position. 

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Executive Editors

Executive Editors represents the voice of the magazine.

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