BEIRUT: Austerity measures are underway in Lebanon. Fiscal reforms are much needed to ease the treasury by reducing the deficit. It will work in the short term. However, in the long term, they will not be enough. The Lebanese economic infrastructure needs overhauling. After all, even deficit financing would have worked if the Lebanese economic machine was functioning.
What I mean by “economic machine” is the infrastructure that facilitates value transactions between people. That infrastructure is dual in nature. The first nature is physical. The second is socio-cultural, i.e. habits and biases in economic behavior, culture, law, to the very social fabric. I will not list the known factors that are driving costs of production like bad transportation infrastructure, immature processes, quality loss in agriculture, high telecommunication costs (one of the highest worldwide), the high cost and unease of doing business, etc. Instead, I’m interested here in the study of the second nature, the socio-cultural. It is important to study the economic behavior that’s hindering growth and look for a way to nudge in order to change a bias shared by the Lebanese communities, impeding to expand the radius of opportunity for each of them. It is crucial to avoid the slippery slope that has led us to the socio-economic impasse we’re in. If we wished to save our country, we should find the answers beyond the neo-classical economic theory, beyond austerity or spending, and, surely beyond indebtedness.
Let’s first look at the roots of our economic behavior, to try to answer the question about what’s hindering socio-economic exchange. In the past, and especially in rural economies, economic transactions were defined across co-centric circles of trust, inside which, members mutually provide services without expecting an immediate material return. Family members come first, then come members of the same village, then those of the same tribe (politico-religious affiliation). Very few dealt with people outside their communities, those elite were mostly merchants trading goods across villages. The others served each other without expecting an immediate material return, and the concept of immediate gain of capital was not predominant. It is the services offered that were counted, the more you served today, the more you receive tomorrow. Tribal membership led to cooperation.
As the urban inflow movement picked up, especially from the ‘80s onward, and brought people from all corners of the country into the capital’s suburbs, ghetto economies were established. Due to the civil war and education, habits of proximity-transaction were reinforced. Moreover, community leaders adopted a protective political behavior. Indeed, clientelism became the norm in public administration during the ’50s, but we could make sense of it in the tripartite agreement of 1985. How so? Even though the agreement didn’t see the light, its driver was clear: peace out of fear. In that sense, peace was conditioned by an equal sharing of the economy across the virtual aisles of confessions, rather than repairing the economic machine and stirring up activity to increase everyone’s quality of life and heal the belief systems. Taef confirmed the logic afterward.
These virtual aisles between sides reinforced discriminatory biases. Regional and religious filters were added in economic decisions that even a child becomes conscious of them at a very early stage. A vicious circle impeding cross-communal transactions freezes social relationships, to finally put transactions altogether into a halt when all the opportunities within each community become consumed. People are stranded by social beliefs limiting their willingness to socially commit with people belonging to other circles. Parties and religious institutions have reinforced these ancient beliefs at the doors of the capital that is trying to push towards modernity. When an economy hits a low, one cannot expect anything good. Shared economic interests between communities are key to achieve an economic peace.
But why was the impasse manifested today? Beyond bad policy, embezzlement and the like, the answer might be found in demography. The Lebanese population has grown 50 percent in the past 10 years. Cities in Lebanon have evolved into metropolises, while the urban population reaches 72 percent of the total population. Because of that, the inherited modes of socio-economic transactions have shown their limitations. Favoritism, i.e. exclusive intra-communal access to public and private sectors, and other primitive economic modes are not working anymore. In urban and cosmopolitan areas, socioeconomic transactions follow more complex rules than the ones we have. The meritocratic model we most long to instead, where the only rule is the rule of law, a guarantor of justice and economic rights, needs a public administration and a judicial system that reinforces trust.
Our challenge is to nudge the system to achieve economic peace, and consequently, growth. We can learn from the rare multi-confessional villages, in which communities shared economic ties between them before the civil war, and enjoyed perfect peace during it, and strived after it. Stable social relationships are essential for exchange.
Cultural change takes a whole generation to take effect. 20 years of good use of reformed public education, in a way to appeal to the middle class, is key. It should be accompanied by practical implementation of deontological measures in public and private sectors, in a way to sanction situation of conflict of interest, impose tenders, and encourage fair competition, equality of opportunity, societal tolerance. Internal tourism is also key for intra-communal socio-economic exchange. Striving for tolerance the sine qua non-condition. Tolerance is the sister of innovation. They both create economic growth above and beyond the limits of the mechanics of society. After all, tolerance contributes to freeing up productivity by including more talent and dynamizing value exchange.
It is urgent to move from tribal economy to the rule of law. Defaulting on nudging our society to create economic peace, the impasse will become a willed destiny. As a reminder, in 2018, the unofficial unemployment rate reached 43 percent amongst youth, while suicide cases grew 40 percent from the year before (the second most important increase after the 2008 financial crisis). A lot of hope is put in the new generation of citizens.
Allen Barrak is a senior management consultant in banking risk and compliance. He works with major French banking groups on regulatory compliance requirements. He holds an MBA from Grenoble Ecole de Management.
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