Entrepreneurship in times of systemic change

Links to the future

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  • October 2019 events have hallmarks of systemic shocks.
  • Risks are unfathomable and early economic impact evaluations are necessarily inadequate.
  • The future may depend on extraordinary courage, discipline, and daring visions.
  • Entrepreneurship has the potential to be a key ingredient in building national prosperity.

These are times when a discussion of entrepreneurship—Executive’s traditional focus in the November issue—could be almost a crime, as it would ignore the nation’s stories of courage in choosing a new destiny, of valor and compassion, of united wills, of exuberance, and of concerns.

The events of last month, to the mind of this observer, were undeniably a dual positive shock to Lebanon. The first positive shock was that the protests represented a genuine outpouring of popular will and desire for self-determination as a nation with a shared identity. A sort of Lebanese political enlightenment and break with the long narrative of self-induced or self-incurred tutelage that Immanuel Kant talked about in his Enlightenment definition 235 years ago.

Outside of this sociopolitical frame, the second positive shock sparked by the protests and related developments during this fateful October carried all the hallmarks of a systemic economic shock. Seen in the context of 27 years of systemic economic deficiencies—the emphasis on accommodation of investors and financial inflows at the expense of redistributive and bottom-up economic growth—these calls for change are both radical and necessary.

At the beginning of Lebanon’s post-conflict reconstruction and development in the early 1990s, there were understandable and initially rational preferences toward rebuilding the country from its urban center and revamping profit-generating economic frameworks in communication, transport, trade, and tourism. It was the Rafik Hariri era; during which GSM mobile networks were rolled out under build-operate-transfer contracts from 1994, the airport was rehabilitated, the airport-to-city highway was constructed, and there were decades-long development efforts undertaken in Beirut Central District—the capital’s downtown and country’s showcase.
These investment concentrations gave the appearance of efforts calculated to benefit the economy from the top of the pyramid. For some years through the mid-1990s, these approaches worked in important ways, especially as long as they coincided with hopeful regional vibes such as optimism over ending the conflict in Palestine.

At other times, however, and increasingly after the late Prime Minister Rafik Hariri’s assassination and in the more recent post-Hariri years, the international investment, debt-financing, monetary and narrow property imperatives of the Lebanese economy’s orientation were either not working at all or benefited only the very few at the top. The economic system increasingly nurtured inequality.

With even more passing years and vacillating economic cycles with frequent downturns—which in the current decade were exacerbated by the impact of a persistent regional and humanitarian crises—the perception of a seemingly unstoppable drift into corruption and increasing inefficiency has been feeding not just inequality, but spiraling popular rage at economic immorality and unfairness. The people are now demanding an end to this spiral of inequality and poverty—and the end of this post-conflict economic system.

Plethora of uncertainties

Juxtaposed with these two positive and hugely important shocks of rescinding political and economic systems that have become counterproductive for Lebanon’s society, however, weigh risks and uncertainties, some unfathomable, on the counter side of the sociopolitical and socioeconomic scales of the October developments.

These serious downside potentials entail political and societal risks, such as the possibility of internal clashes between would-be system changers and system defenders. Another juxtaposition with explosive potential is grounded in the strength and deep-rootedness of the existing societal system with its communal allegiances, religious belonging-based political privileges, and forceful political consociationalism. Dismantling or abolishing this social construct is a declared aim of those who oppose it on the street all over Lebanon, but their opposition suffers from the absence of fully formulated systemic alternatives. This experiment is thus fraught with unpredictable social outcomes and risks of removing the system without having the ability to put a newer, fairer system in its place.

Also not to be neglected in this systemic political context are risks of mass proliferation of counterproductive human behavior patterns. Fears of a rise of ethically deficient political behaviors in Lebanon are supported, for example, by the track record of alternative parties and organizations in the past three years when several organizations with loud calls for change in the political establishment revealed themselves within a relatively short time to be dominated by aspiring political players that were just as power hungry and conspiratorially minded as any politico of the old guard (see Executive’s pre-election coverage of 2017/18).

Lastly, considering Lebanon’s precarious geopolitical location and weak position in global power games, it might be perilous for this country to forget timeless patterns of international power politics over all the excitement of the rising new national self-awareness of the Lebanese people. These age-old international patterns show small countries’ decreasing ability to preserve or politically defend their interests against rising external military or economic pressures. Such has been manifested time and again when a fragile polity’s attempts of internal systemic change and self-definition were taken as invitations by malignant neighbors, expansionary empires, or simply self-interested powers who would happily exploit soft-target societies and weak countries for their gain.

Barrage of economic risks

In terms of uncertainties and sadly predictable human behavioral risks in the crucially important realm of Lebanon’s economic fortunes, any new development aspiration for 2020 and beyond is, since the October events, faced with a barrage of very justified concerns over ill-advised economic herd behaviors, such as capital flight and runs on banks in the immediate term, and over the implications of Lebanon’s indebtedness in international financial markets in the middle to long term.

It does not need to be explained here why panicky capital flight would be a bane for the Lebanese economy. With regard to financial scenarios under no-longer-functional debt equilibriums, cautionary examples of the mercilessness of markets and international financial institutions abound and tell their tale that the best foreign intervention inflicts traumas since the establishment of the Bretton Woods System that can only be averted by a country’s significant own constructive policies and extreme financial self-discipline.

Also worrisome for the economic future of Lebanon is the entrenchment of national patterns of favoring consumption with preference for imported goods, combined with an expensive and wasteful addiction to show off behavior in parts of society. Behavior change of such magnitude as a shift to increased local consumption and public pride in economic modesty needs institutional infrastructures, rational awareness, and more courage than a month of demonstrations.

A not-so-much behavioral but structural worry is also warranted by the status quo of Lebanon’s national economic organization, with its lopsided growth drivers that for too long has benefited narrow elites but has stifled the building of export capacities, harmed total factor productivity, and has driven down investment in industry that could have led to healthier capital stock if addressed at earlier points in the past 15 years.

Instead of speculating on positive and lasting insistences of the popular will, it can easily be argued that the Lebanese business community, financial community, and households were somewhat complicit with their—after all, elected—governments. Such conclusions derive from the fact that urgently required investments into productivity and competitive industries in Lebanon were substituted by societal stakeholders with imports of money and imports of goods.

In the increasingly debt-dependent public and consumption-happy private sectors, there was relentless channeling of hard currency inflows into servicing of public debts and on the private side—from the remittances of the diaspora—into consumption (of daily foodstuffs, other fast moving consumer goods, and social events from dinners to weddings), consumption (of household investment goods such as cars and non-productive real estate), and consumption (of education and health services that would not increase productivity in the short run in the first case, or quality of living in the second—unless embedded in smart public investment and job creation programs, which they were not).

Which way is forward?

The protestors’ denials of the economic status quo and calls for instantaneous abolition of the entrenched system of many flaws cannot mitigate the plethora of national economic concerns—and in some cases, like fears for the banking sector’s liquidity levels, seem to exacerbate the problems. Given the precarious juxtaposition of positive shocks and self-destructive triggers in Lebanon in Q4 2019, the October developments and Lebanese Enlightenment appear, therefore, to be in deep need of economic answers that transcend the wisdoms and mental range of business-school orthodoxies and utterances by economists who adhere to the run-of-the-mill perspectives. It is a time of big risks that are not to be denied but might be soluble with courage and strength that arises from united wills and daring visions.

In economic and philosophical literature it is uncommon to find visions that are not just utopian thought experiments or disruptive to a point where their implementation would preserve nothing worth calling an economy, but some might exist outside of the realms of first-world schools of economic thought.

That this is a time of big risks is undeniable, but these can be faced with courage and strength through united visions and wills.

The level of daringness that the current problems of Lebanon require in addressing might, for example, be connected to alternative pathways that divert from the often tried and always imperfect solutions that are in line with agendas of austerity, draconian deficit cutting, and internationally directed debt reforms. The weaknesses of such approaches, which have been associated with the Bretton Woods System, have been pointed out in the context of the Greek and southern European but also various Latin American crises. A few years ago, in the late 2000s, an economic critique of globalization and first-world recipes on how aspirational developing countries should manage their economies was formulated in a theorem of “bad Samaritans” by Korean-born development economist Ha-Joon Chang.
In Chang’s perspective, today’s rich countries—above all the US—and the international financial institutions aligned with the interests of the most powerful economies have historically tended to elevate their economic performances by practicing methods, such as unfair subsidies, self-serving (albeit somewhat limited) inward trade protectionism, coupled with outbound trade imperialism, and blatant re-engineering of important new tech products (e.g. rail technology in the 19th century), while they were themselves still economic underdogs in comparison to other countries. Once they are occupants of top economic rankings, however, the so-risen powers habitually kick away the very ladders that fostered their economic advancement from beneath developing economies under the guise of neo-liberal paradigms, such as free trade and strict intellectual property protection.

Such points seem debate-worthy as Lebanon is in need of rescue from falling under even worse international economic domination. However, what might even be more pertinent in the context of Lebanon’s situation and need for strong home-grown economic visions today, could be in emulating a national entrepreneurial mindset for which Chang provides a hypothetical example—with 50-year-forward vision of an economic miracle in the world’s poorest country by GDP in 1995 (Mozambique)—and a historic case from the background of personal life experience as a Korean native who grew up in lockstep with South Korea’s economy rising from abject poverty—a per-capita GDP half that of Ghana at time of Chang’s birth in 1963—to being included in the top tier of global economic influencers—the OECD and the G20—from the late 1990s.

Chang’s noteworthy messages could be read in the current Lebanese state to say that underdog countries can find their prosperity and that there is no foretelling of the future potential for exorbitant economic growth that a combination of new tech and inspired entrepreneurialism can create for a country—even one in a situation such as Lebanon finds itself.

There is no immutable mentality in any society that would mandate a culture of economic underperformance.

However, an even more potent and more hopeful self-perception and vision in future-oriented Lebanese thinking could perhaps grow from a combined development of entrepreneurialism as the implementation of an economic vision without regard to the risks, with a focus on manufacturing, and creating supportive and efficient—and digital—institutions. This constructive design thinking would necessitate a forward-looking thought culture and a departure from currently popular obsessions with perceiving everything and everyone dealing with money and development a priori as corrupt.

A new and futuristic national mindset coincidentally also might be a nice organic fit with a more self-asserted polity that is convinced of its national belonging and common purpose. But besides the emphasis on entrepreneurial virtues that the Lebanese claim to possess to a very high degree, it is unlikely to work without prioritization of manufacturing (noted not only in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism as “the most important, though not the only route to prosperity” for aspiring countries) and a focus on reshaping a national determination and culture that perceives economic growth as achievable and provides entrepreneurial initiatives with structured administrative, policy, and institutional support.

A truth quite frequently ignored in local debates is that there exists no immutable mentality in any society that would mandate a culture of economic underperformance or backwardness. But new paths by definition are the paths that need to be discovered and trails that need to be blazed—and this is exactly where the practical virtues of entrepreneurship come into play. Entrepreneurship, which appears to exist in Lebanon indeed in relative abundance now even in form of producing impactful societal movements, is one of the factors that can make economic hopes work and that can generate jobs—especially in entrepreneurship of the export-oriented manufacturing kind.

Still, constructing a successful economic development mosaic of Lebanon will require adding further pieces. As another noted development economist, Briton Paul Collier, recently emphasized in musings on the future of capitalism, disadvantaged economic locales such as provincial cities that have been left behind, fallen off, or never embarked on the economic development train can be vitalized by the creation of new economic clusters. “Broken cities need to attract firms that are dynamic enough to start a new cluster in their wake,” writes Collier, but he admonishes that such dynamic firms and entrepreneurs need to be institutionally supported and protected against the first-mover disadvantage of nesting in a broken city (the same presumably applies to a small country with backward infrastructure).

This is where the circle between Lebanon’s systemic change impulses and Executive’s self-chosen focus on entrepreneurship as the regular coverage pillar and main topic in the November issue actually closes, at least in some sense. Before the events in the middle of October, Executive editors were investigating examples of Lebanese entrepreneurship and potential job creation from the growing ranks of accelerators and incubators linked to the tech entrepreneurship ecosystem at and around the Beirut Digital District (see page 60) and Agrytech acceleration (see story page 56) to a manufacturing-based and very entrepreneurial initiative called Houmal Technology Park (HTP) in a semi-rural hillside community 20 minutes away from the Lebanese capital.

To recall how Kant defined Enlightenment while it was in full swing, his essay says that tutelage is man’s inability to use his cognitive facilities without another man’s direction and stipulated that this tutelage is self-incurred if it is not because of complete ignorance or weakness of said cognitive facilities but where tutelage is based on lack of resolution and courage to think and act for oneself. In regard to Lebanon’s exit from tutelage in conjunction with its emerging and not yet fully visible new sociopolitical and economic realities, it seems that old Enlightenment philosophers, modern development economics, and practical entrepreneurial experience all point toward a need for a genuine and well-structured social contract that is based on original thinking and true—meaning practical and interconnected—self-interests of the polity that has shaken this country up with the effect of opening so many new and positive futures.

Thomas Schellen

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