Lebanon’s tragic path from economic miracle to collapse

The most daunting challenges to a society’s well-being are typically complex and intertwined, and we often reduce them to one or two digestible variables. The current crisis in Lebanon is a painful case in point. It is defined as an economic crisis—the third worst in the world since the nineteenth century, according to the World Bank. For those who are familiar with the Land of Cedars, this may be surprising given Lebanon’s self-image as a country whose major strength lies in its economic performance. Framing the crisis as an economic one also hides the root causes of the catastrophe that go far beyond the country’s economy and fundamentally rest on continued disregard for human dignity for all residents of the country. This shorthand version of what ails the country is inadequate and begs elaboration.

A brief history

Since the establishment of Lebanon in 1920 under French mandatory rule, the country has been defined as an economic miracle and its inhabitants as natural-born merchants with proven financial capabilities. On the one hand, scholars and others described Lebanon as a weak and decentralized state that could not or would not exercise its sovereignty, and, on the other hand, they saw it as a state whose main strength lies in its economic vitality. The Lebanese people also cultivated their self-image as merchants and entrepreneurs by birth, an image that became part of their national identity; in the 1950s and 1960s, Lebanon gained popular acclaim as the “Switzerland of the Middle East.” Its researchers defined it as the Republic of Merchants and praised the free-market economy that allowed it to thrive and function as a bridge between East and West, particularly in the area of financial services.

Indeed, Lebanon, and especially Beirut, had a relative regional advantage because it was uniquely capable of exercising its financial mediation role that no other country in the Middle East could fulfill. Occasionally critics complained that the Lebanese, by neglecting domestic production industries, allowed only narrow sectors of society to enjoy the fruits of the merchant republic. Overall, however, Lebanon was considered an island of sanity, economic prosperity, and vibrant culture in a “dark and poor” Middle East.

Needless to say, this narrative of Lebanon as “a success story” conveniently overlooked the struggles of most residents of Lebanon to attain the basic living conditions commensurate with human dignity. The civil war that broke out in 1975 deflated the “Switzerland of the Middle East” balloon, but when the war ended in 1990, images resurfaced of Lebanon as a financial miracle and of the Lebanese as a people with exceptional resilience and economic capabilities. Although the post-war reconstruction of Lebanon—and of Beirut in particular—was also criticized, especially in the context of the neoliberal (and corrupt) policies that guided the Lebanese Prime Minister, Rafik al-Hariri, overall, until a decade or less ago, the Bank of Lebanon, in cooperation with the World Bank and the International Monetary Fund, managed to stabilize the Lebanese economy despite the many political difficulties that have plagued the country from 1990 onwards: a long line of corrupt and dysfunctional governments, postponed elections, Hezbollah’s takeover of important sectors of politics and society, the 2006 war with Israel, and the Syrian civil war that spilled over into the border areas between the two countries and brought about a million Syrian refugees to Lebanon.

After the end of the civil war in 1990, Lebanese intellectuals began to use new images to capture Lebanon’s economic capabilities. Some claimed that while Syria, Hezbollah and Iran aspired to reduce the country to a “Hanoi” or a “fortress,” (i.e., a rigid and closed ideological center), Rafik al-Hariri until his assassination in 2004 and his supporters thereafter sought to turn it into a “Hong Kong” and a “Riviera,” (i.e., an open and liberal global financial center). Thus was renewed the myth that Lebanese society is characterized by resilience in the economic and financial sectors. On the one hand is a state with rotten political institutions, and on the other hand is the private sector that facilitates the country’s relative economic stability, attracts investment, and allows Lebanon to continue to exist as a financial hub. In other words, despite its weakness and its political and security challenges, the country survives thanks to the vitality of its economy.

Protesters have demanded equality and the realization of civil and human rights for everyone, regardless of sectarian identity or sociopolitical background.

At the same time, many in Lebanon were unimpressed by the myth of economic resilience, and argued that the economic system could not be disentangled from the political one. The discourse on economic resilience, they argued, served only corrupt Lebanese politicians from across the sectarian spectrum. For more than a decade, forces from civil society have been trying to challenge the political-economic sectarian system that maintains patron-client dependent relationships between politicians and their constituencies.

The garbage crisis from 2015 onwards exposed in full force the dysfunctions of the government and political class. Activist groups such as You Stink and Beirut My City took to the streets in protest and in an attempt to undermine the power of the political-economic elite. Without defining their demands as such, these protesters were speaking the language of integral human development. They demanded equality and the realization of their civil and human rights for everyone, regardless of one’s sectarian identity or sociopolitical background.

The current crisis, which began in October 2019 and intensified following the COVID-19 pandemic and the terrible explosion in Beirut on August 4, 2020, exposed the fact that since the end of the civil war in 1990, the country’s political-economic elite has promoted a clear government policy that favored international construction and tourism corporations at the expense of other local and productive sectors.

At the same time, the Bank of Lebanon artificially stabilized the value of the Lebanese lira to encourage external investment. The government eased tax laws and deregulated building codes for the benefit of Lebanese and international corporations. For the past two decades, such overtures to international investors and businesses have triggered most of the massive construction taking place in Beirut and its suburbs. These construction projects have been erasing the city’s past, building in its place a new high-rise, beachfront skyline for the upper class, and for wealthy Lebanese immigrants who own assets in the city while the center of their lives and economic business is outside Lebanon.

In order to realize its economic goals, this elite class, exploiting its symbiotic relationship with the state’s banking system, mobilized the Bank of Lebanon as an arm of the state. Until the outbreak of the demonstrations and strikes in October 2019, the banks managed to maintain a semblance of stability through loans repaid by additional loans. But the image of stability was purchased at the cost of deepening economic disparities in the country, disparities that eventually ignited the popular protest.

The World Bank now states that Lebanon is facing an economic crisis with historical-global dimensions.

Lebanon’s relative economic stability was deceptive: it relied on a huge gap between the national debt and the gross national product. On the eve of the outbreak of the current popular protest, government debt reached 155 percent of the GDP. Now, the debt-to-GDP ratio in Lebanon is the highest in the world. This ratio is one of the reasons why the World Bank, which until recently cooperated with the illusion of Lebanese economic success, now states that Lebanon is facing an economic crisis with historical-global dimensions.

One of the interesting aspects of the current crisis is that while Hezbollah presents itself as a mass movement that cares about the weak and does not identify with Lebanon’s image as Switzerland or Hong Kong, the organization has become the most significant defender of the existing political system. Since 1990, Hezbollah has gradually integrated itself into the sectarian patron-client structures and through them into the country’s economic systems. In fact, the Shi’ite organization has become an active participant in the Lebanese neoliberal economy. It relies more and more on the Shi’ite upper-middle class for economic support, and also enlists the help of the Shi’ite immigrant community outside Lebanon, which transfers money to its co-religionists living in the country. When the demonstration wave erupted in October 2019, Hezbollah tried to question the credibility of the protesters and discredit the seriousness of their intentions. Even now, the organization’s defense of the existing political system is what has so far helped the endurance of all the sectarian-patron politicians.

The gap between the Lebanese self-image as an economically resilient society and the harsh reality could not be greater.

The news from Lebanon in recent weeks portends not just an economic crisis, but a total collapse. More than half of the population is on the verge of starvation and the country is rapidly becoming a failed state. As noted, over the years Lebanon has experienced many political crises including civil wars, political violence, and blatant interference by foreign countries in its internal affairs, not least the military invasions by Israel and Syria. However, this is the first time that a crisis of this magnitude has been propelled by the collapse of the economy. The gap between the Lebanese self-image as a society with vitality and economic resilience and the harsh reality could not be greater.

The role of civil society

The restoration of stability in Lebanon depends on the success of the country’s civil society in challenging the ruling traditional elite and in strengthening the state’s institutions. While the immediate crisis is definitely economic, its root causes are related to the disregard for human dignity across all sectors of political and social life in the country. The dilemma is how to solve the trap in which Lebanon finds itself—precisely, how to stabilize the economy and rehabilitate the social and political systems when the political class, including Hezbollah, is scrambling to secure its privileged position. Any external economic assistance to Lebanon could be absorbed by this elite, as has happened in the past.

How then, can economic relief come to the millions of residents who desperately need it? Past experience shows that even if the “Switzerland of the Middle East” myth was exaggerated and excluded many, Lebanese society as a whole is indeed vital and resilient. The protest movement that arose in October 2019, as well as previous protest movements, demand the removal of the current leadership and the dismantling of the country’s sectarian political system as a condition for the rise of a new non-sectarian civic leadership. But the sectarian system is deeply woven into the fabric of the political and social life in the country and the elimination of sectarianism is an attractive but difficult slogan to implement. It is also clear that Hezbollah, as the most powerful political and military player in the country, will not allow a new political arrangement that will not maintain or strengthen its status and power.

One could hope that even if a new leadership is established as part of the representative sectarian system, it will at least be able to dismantle the narrow sectarian politics and act more justly and fairly for the benefit of all residents of the country regardless of their religious and sectarian affiliation. At the end of the day, only a more holistic approach that respects human dignity will allow the Lebanese people to realize their full potential. History shows that they have the skills to do so.

Asher Kaufman is the Regan Director of the Kroc Institute for International Peace Studies and professor of history and peace studies in the Keough School of Global Affairs at the University of Notre Dame. 

This article is part of a series of blog posts published by the Keough School of Global Affairs. Dignity and Development provides in-depth analysis of global challenges through the lens of integral human development.

A version of this article was originally published in Hebrew for the Social History Workshop Blog of Haaretz daily newspaper.

Photo: “This is Beirut… #48” by Thomas Leuthard is licensed under CC BY 2.0.


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