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Lebanon must move toward universal social protection

Bring back the state

by Lea Bou Khater

Decades of social and economic injustice were a driving factor in the social unrest that burst onto Lebanon’s streets in mid-October 2019, unfolding into a revolution. Lebanese had been pushed to breaking point by the effects of a longstanding economic malaise that has since worsened into a ongoing financial crisis with job losses, lowering of wages, and informal capital controls preventing people from accessing their money. But while the immediate, painful effects of the crisis are being debated widely in the Lebanese discourse, less attention has been paid to long-term risks. Most significantly, the impacts on the levels of poverty in the country and the state’s ability to care for those left behind.

Lebanon has long been an unequal country in terms of wealth. A study covering 2005 to 2014 by Lydia Assouad, a fellow at the World Inequality Lab, found that 10 percent of the Lebanese adult population had captured 45 percent of wealth. More recently, data from a leaked 2020 document by the Banking Control Commission of Lebanon showed that 1 percent of depositors held 52 percent of deposits in 2018. The country is a textbook case of a neoliberal state: a rolled back welfare state that maintains a laissez faire relationship with businesses and investments at the expense of the well-being of residents whose social protection becomes secondary. In other words, the state’s laissez faire relationship with the private sector—illustrated by regressive taxation policies or the floated privatization of public enterprises—dismantles the commitments of the welfare state in guaranteeing social and economic justice through progressive taxation and the provision of public services and universal social protection.

Left behind

As it stands, Lebanon’s current system lacks developmental logic, resulting in inefficient social protections that exclude a significant portion of the population—44 percent of residents do not benefit from any form of social protections according to 2018 figures from the Central Administration of Statistics (CAS). The inability of the Lebanese government to provide these protections is a breach of the social contract between the state and its citizens. Formal social protection devices are restricted to health insurance, family allocations, and end-of-service indemnities through the National Social Security Fund (NSSF). In addition, public sector employees—estimated by CAS at around 300,000 people, including the army and security forces—are covered through different institutions. Excluded from existing social protections are unemployment insurance and insurance for disability and work accidents. These fragmented and uncoordinated schemes leave many behind, including those working in the informal economy such as seasonal laborers, construction workers, and domestic workers, as well as the self-employed, unemployed, and retirees.

In lieu of the states’ role, there is a heavy reliance on services provided by organizations that further weaken the ties between citizens and the state while conversely maintaining the pervasiveness of traditional sectarian patron-clients relationships—what Professor of International Affairs Melani Cammett dubs “compassionate communalism.” The Ministry of Social Affairs (MoSA), for example, has been outsourcing social services to around 250 civil society organizations (CSOs) that are in charge of delivery for around 40,000 beneficiaries. In other words, the MoSA funnels around 60 to 70 percent of its annual budget—public funds—to CSOs that tend to have sectarian denominations. Partnerships between the state and CSOs require strong governmental oversight, with clear procedures for contracting and monitoring—this is not currently the case. It is necessary to reconsider the extent of delegation of social services in order to secure effectiveness, efficiency, and equity.

Lebanon does have a National Poverty Targeting Program (NPTP), implemented by the MoSA with the support of a World Bank loan, which is used to deliver direct cash assistance as well as other services and exemptions to some 42,000 poor households selected from a database of 140,000 households. With the backdrop of the financial crisis, the NPTP has been scaled up with a $400 million loan that was earmarked in the 2020 budget. However, currently the only anti-poverty policy of the government, the NPTP requires a great deal of revision with the aim of improving its administrative structure, household database, benefit package, use of its financial resources, and oversight.

Before assessing the needs of impoverished Lebanese, it is also necessary to determine how many citizens live below the poverty line. Yet this has proven difficult. A report by the CAS and the World Bank in 2011/2012 had 27 percent of the population under the poverty line but dedicated most of its pages to explaining why it could not be compared to previous studies and its many methodological limitations such as a high non-response rate. Working without data has long been the norm in Lebanon, impacting the state’s ability to provide for its citizens’ needs. Without accurate data of the levels of poverty in Lebanon, this situation will only get worse.

Moreover, there is a consensus among social protection practitioners that targeted cash assistance can only be effective in reducing poverty when accompanied by universal social policies that encompass the population at large. Ideally, funds allocated to different health protection schemes, including those targeting healthcare under the NPTP, should be consolidated into a universal health coverage scheme. Lebanon pays too much for relatively too little in terms of healthcare. Poor households spent around 12.7 percent of their income on health in 2012, a high proportion by international standards (the World Health Organization defines a large health expenditure as one that exceeds 10 or 25 percent of the total household expenditure or income).

Distorting effects

With restricted and inadequate social protections, the Lebanese diaspora has long been playing the role of social security for their families—in 2018 the World Bank estimated remittances to Lebanon at $7.2 billion. However, this safety net has social consequences. Alenjandro Portes, director of the Center for Migration and Development at Princeton University, argues that remittances tend to have a palliative effect on the country to which they are being sent, consolidating the ruling elite despite increasingly deteriorating political and economic conditions—with the result of taming or at least delaying the struggle for change. As soon as remittances drop, poverty previously cushioned by migrants’ transfers hits hard. Remittances to Lebanon have decreased five times year-on-year and expanded three times in the 2010 to 2017 period, with 2017 noting a drop of 7 percent that has yet to be recovered. With the current crisis and the lack of trust brought on by opaque capital controls, it remains to be seen what impact this will have on remittance levels moving forward—and by extension if it will have an effect on poverty levels in the country.

Bleak horizons

The unfolding economic crisis is expected to further deteriorate living standards with the now de facto depreciation of the national currency, the unofficial capital controls, hidden haircuts, and ensuing price inflation. Looming austerity policies aimed at streamlining state expenditures and increasing revenues—those suggested in the 2019 Article IV consultation by International Monetary Fund (IMF) such as raising value-added tax, increasing fuel excises, and eliminating subsidies to the state electricity utility Electricitié du Liban—would have the greatest impact on the poor and middle classes that are already struggling to make ends meet. These proposed indirect and regressive taxes would put additional strains on economically vulnerable Lebanese and the few social protection schemes that exist.

The crisis and expected austerity policies are also likely to increase underemployment, unemployment, and informal employment (see article). Unemployment was estimated at 11.4 percent of the total labor force in 2018, and 55 percent of workers are not registered at the NSSF, falling under the informal economy, according to a 2019 CAS labor survey. While there are no firm figures, since October 2019 Lebanon has already witnessed business closures, layoffs, salary cuts, and the decrease in real value of wages. The decrease of state revenues will also make it very difficult to pay the public-sector wage bill for the estimated 300,000 public sector employees.

In need of overhaul

It is important to implement wage-indexation and protect the value of NSSF end-of-service indemnities—which after 40 years of work would only cover a former employee for just over three years, excluding health insurance. In fact, today the state owes the NSSF sickness-maternity fund the staggering amount of LL2.4 trillion. In addition, the Lebanese public sector needs to be restructured in a way that streamlines excessive employment while protecting wages and benefits. Drawing upon critical phase of reforms and austerity policy, it is also necessary to launch the much-needed reforms of the labor code that would guarantee the rights of currently excluded workers and would sanctify the freedom of association that is crucial in the present and imminent struggle for social and economic justice. Labor reforms should urgently include the abolition of the kafala system which will exponentially improve the working and living conditions of migrant workers, particularly during the current financial crisis.

At this important juncture, the demands of protesters converge into bringing back the state for the protection of all its residents and the livelihoods of families, students, workers, elderly, and retired. For this, it is necessary to question and reconsider our harsh neoliberal economic model and its accompanying targeting protection schemes that foster and maintain deep-seated sectarian clientelism that in turn consolidate the autocracy of the ruling elite. We need to bring to the fore universal social protection, putting the state in front of its responsibilities vis-à-vis its residents, which is imaginable if we efficiently redesign our social protection policy. Reforms to social policy should be designed in tandem with the structural reform of our failing economic policy in order to ensure fair and sustainable development.

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Lea Bou Khater

Lea Bou Khater is a senior researcher at the Consultation and Research Institute in Lebanon and lecturer in development studies at the Lebanese American University.

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