Most of the already very large literature on the Lebanese conflict has focused on the etiology of Lebanon’s civil strife: its roots, causes, origins, antecedents and facilitating factors; its inherent or contingent characteristics. And, as one might expect, many conflicting readings and interpretations have been offered to answer the controversial question of the origins of the Lebanese conflict.
Much less has been written (except descriptions and reports) on the process of the conflict, on the dynamics of factors and forces that have come to constitute a conflict system that reproduces itself, generating its own economic sphere and social strata and an ideology of discord to justify and legitimize its continuation.
A better understanding of how this conflict has renewed and revived itself may also contain clues concerning the conditions necessary to terminate it. With this in mind we shall examine here what has followed the beginning of the war in 1975 rather than what preceded it.
The fact that this brutal conflict continues today, nearly 15 years later, makes this task particularly difficult. The obstacles include lack of access, lack of sufficient documentation and certainly a lack of critical distance, in time if not in space or degree of implication. Despite these reservations, we will risk advancing some preliminary remarks about the internal reproduction of the Lebanese conflict and the prospects for dismantling the Lebanese war system.
The First Phase: Prosperity Despite War
The Lebanese conflict, now in its fourteenth year, is already half a generation old and ranks among the longest confrontations of its kind in the present century. What has been the material basis of this war? How does the war maintain itself despite massive physical destruction, large-scale disruption of activities and tremendous loss of human life? Why have we witnessed an economic collapse only in the last three years? Has the Lebanese war finally reached its economic limits, and is there a plausible prospect for its termination by sheer economic exhaustion?
To try to answer these major questions, we will divide the economic history of the war into two distinct periods: the seven years between 1975 and 1982, and the seven years between 1982 and 1988. In the first period, civil strife and continuous confrontation coexisted with economic prosperity. During these seven years of strife the standard of living of most Lebanese remained stable or even improved.
This apparent paradox stemmed from four major factors. First, Lebanon possessed a considerable economic reserve. The 1975 explosion was preceded by 10 years of strong economic expansion: The average yearly rate of growth was around six percent; the national income per capita increased from $400 in 1965 and $647 in 1970 to $1,415 in 1974. Lebanon began the 1975 war with a surplus in its balance of payments of more than $4 billion and very strong coverage of the Lebanese pound in gold and hard currencies (reaching the level of 130 percent of monetary instruments). In addition, the Lebanese upper and middle classes held very substantial private reserves and savings. 
True, this rapid economic expansion was accompanied by severe maldistribution and uneven development among regions, classes and communities — inequities which created some of the major preconditions of the 1975 explosion.  But when the war started, enough public and private economic and financial reserves existed in the country to compensate for the losses and disruptions of the first few years.
A second factor was the exceptionally favorable regional conjuncture. Running almost parallel to the first period of the Lebanese internal war, the oil boom and the tremendous and sudden increase in the revenues of the Arab states of the Persian Gulf after 1973 led to a huge demand for labor power, goods and entrepreneurial skills. Lebanese workers and professionals alike responded in very large numbers to this historic opportunity, coming precisely at a time when the Lebanese economy was beginning to feel the effects of the continuing internal strife. The numbers of Lebanese migrant workers in the Gulf states rose from 50,000 in 1970 to 98,000 in 1975 and 210,000 in 1979-80.  These workers, who represented 13 percent of the national work force in 1975, had by 1980 reached the level of 34.6 percent of the entire work force!
Their transfers and remittances (wages, savings, benefits) rose accordingly, from $250 million in 1970 to $910 million in 1975 and $2,254 in 1980.  This means that the weight of these remittances in the Lebanese national income rose from 18 percent in 1970 to 35.4 percent in 1980. The mass of Lebanese expatriates working in the Gulf were providing more than one third of the total economic resources of the country at the end of the first period of the war. Their contribution was certainly the major reason Lebanon could maintain a pre-war level of imports and consumption in an economy already heavily affected by seven years of strife.
The creation of a substantial Palestinian economy within the country was a third factor supporting the maintenance of the conflict system. After its defeat in Jordan in September 1970, the Palestine Liberation Organization transferred its headquarters to Beirut. By the mid-1970s, Lebanon had become the main operational base for the Palestinian quasi-state, with its own bureaucracy, armed forces, institutions and activities. In 1981, according to estimates, the “Palestinian economy” generated more than 15 percent of the gross domestic product in all of Lebanon. The PLO and its affiliated institutions became one of Lebanon’s major employers, creating 10,000 jobs directly and 30,000 indirectly. Its 15,000 fighters spent most of their salaries in Lebanon. The “Palestinian economy” transferred substantial deposits to the banks of Beirut. It operated and developed important institutions (a radio station, a daily newspaper, several magazines, a research center, eight hospitals, 100 schools, 108 diplomatic missions abroad administered from Beirut). The entire PLO budget was by this time probably larger than that of the Lebanese state itself. In any case, the contribution of the “Palestinian economy” was a substantial factor in the first war period’s relative economic “prosperity.” 
To this one should add a fourth factor, the “political money,” the grants and transfers pouring in to the various militias from their backers, not to mention the expenditures of the 17 foreign intelligence services known to be “financially” active in the country at the time! In the early 1980s, this inflow of political money reached an estimated $300 million a year, some 6 percent of GDP. 
The fifth factor was a forced social and spatial redistribution accompanying the conflict. The political-military upheavals of 1975-1976 and the following years were accompanied by all kinds of extortion exerted by the newly formed and locally dominant armed factions, groups and gangs: pillage, seizure, occupation, forced taxation, smuggling and other forms of forced transfer proliferated. The resulting redistribution largely operated (if we simplify a rather complex process) in favor of:
- The lower middle classes and sectors of the popular classes at the expense of the old bourgeoisie.
- The suburbs and peripheries of the country at the expense of Beirut and central Lebanon.
- Segments of the Muslim sects at the expense of segments of the Christian sects.
- Private armies and sectarian factions at the expense of the state administration and financial institutions.
Whatever its catastrophic consequences, this large redistribution produced in the first phase of the war substantial social mobility and a corresponding increase in global demand: several economic sectors were stimulated by the expanding consumption of the rising strata (housing, schooling, access to universities, durable consumer goods).
To sum up the economic character of the first period of the war (1975-1982), we will cite only two indications. First, the trend of national income per capita, after shooting up spectacularly from $647 to $1,415 between 1970 and 1974, continued to rise, though at a slower rate, until it reached $2,011 in 1982. This 42 percent increase in per capita income in spite of seven years of strife summarizes well the paradoxical nature of this first phase of the war. Efficient pressure by the trade unions, despite the political fragmentation of the country, allowed the working class to match this increase in income: The monthly minimum wage rose from $135 to $195 between 1975 and 1982, an increase of 45 percent. 
The second feature of this period can be seen in how the costs of the various clashes were financed. Estimates have put the direct costs of the military confrontations at a yearly average of $900 million. This sum represented the equivalent of one fourth of the Lebanese gross domestic product and would have constituted a heavy burden if it had to be supported totally by Lebanon’s own resources. But out of this “war budget,” $300 million came in in the form of the “political money” transferred by foreign powers to their local clients, and $400 million represented the spending of the PLO on its forces and military allies. So only the remaining $200 million had to come from internal Lebanese resources. This represented, in the economic conjuncture we described above, a “reasonably supportable” pressure on the local resources. 
There were, of course, some expressly negative economic features in this first phase as well. In spite of the historical moment that allowed Lebanon to buy both butter and guns and to maintain a high level of imports and consumption, the Lebanese economy was already experiencing structural changes that came to be fully felt during the second phase. Mainly this involved the considerable reduction of activities and manpower during the 1975-1982 period in a number of significant sectors that were strongly expanding before 1975. The most affected sectors were industry, tourism, transit, the re-export business and educational and health services to non-residents. The direct causes included sheer physical destruction (scores of factories, hotels and other facilities), difficulties of communication with Arab markets (the major ones for Lebanese industrial and agricultural products) and significant increases in costs (salaries, energy, transportation, imported machinery to replace losses). Another element was the rapid development of competing sectors in neighboring Arab countries (the Syrian ports of Latakia and Tartous, the Jordanian port of ‘Aqaba; industries and educational and health institutions in the oil countries). Finally, and most importantly, the general atmosphere of insecurity even outside the periods of violent clashes contributed to a partial deindustrialization (mainly in the manufacture of textiles, shoes and furniture) and to an important weakening of the function of commercial intermediation, physical transit and personal and recreational services that Beirut and Lebanon once provided.
The other side of this restructuring under the gun was that certain other sectors achieved a very significant growth. This was mainly true of banking, construction and public works, engineering, consulting, and printing and publishing. The main element here was the capital transferred by migrants from the Gulf and the redeployment of Lebanese economic activities in the Gulf and in certain European capitals (Paris, London, Athens). But most of these expanding sectors absorbed a limited amount of local labor or carried on the bulk of their activities outside of the Lebanese economic sphere.
The Bill Comes Due
The second period, beginning with the Israeli invasion of 1982 and continuing to the present, witnessed renewed and intensifying internal wars. Unlike the first period, though, these conflicts coincided with a dramatic economic collapse and a severe social crisis. In very broad terms, the factors which had accounted for the “war prosperity” of 1975-1982 had been radically altered — in some cases by the course of the war itself and in other instances by regional trends outside of Lebanon.
First, the regional conjuncture shifted radically and negatively. The end of the oil boom, the reversal of trends in the oil prices, the saturation, slowing down and partial recession of the economies of the Gulf states, the rising costs of the Iran-Iraq war — all of these factors led to a considerable depletion of the “Gulf alternative” as a major source of work and income for the Lebanese. The number of Lebanese migrant workers in the Gulf dropped steadily, from 210,000 in 1980 to 150,000 in 1982, 125,000 in 1985, 90,000 in 1986 and 65,000 in 1987.  Remittances shrunk correspondingly from a peak of $2,254 million in 1980 to $1,906 million in 1982 to $500 million in 1985 and finally to an estimated $300 million in 1987, only one seventh of the 1980 peak! The return of thousands of migrant workers also increased tremendously the pressure on the job market in an already sharply deteriorating economy.
Second, the departure of the PLO after the 1982 war and the dismantling of its infrastructure led to a major shrinkage of the “Palestinian economy.” What had accounted for 15 percent of the GDP and 10 percent of the job market in 1981 was now almost completely lost to Lebanon’s economy. At the same time, “political money” was also shrinking while its origin was changing. Before 1982, major wealthy regional actors like Saudi Arabia, Libya, Iraq and the great powers had important stakes in the Lebanese war and maintained active relations with one or several local factions. From 1983 to 1987, the field was much more restricted and was predominantly the preserve of Syria and Israel, both investing more by way of arms, training and political backing than by direct transfer of money. More and more, resources and foreign currency equivalents were pumped out of Lebanon through the smuggling of fuel and other subsidized goods from the Lebanese to the Syrian and Israeli markets. In this period, the political money still coming in was estimated at between $150 and $200 million a year, or about half the level of the previous period. Significantly, the major source was Iran, which now accounted for nearly all of this amount. These transfers represented substantial socioeconomic leverage for Tehran within a sharply declining economy.
Third, the public and private economic reserves that had helped to cushion and compensate for the costs and effects of the war during the first phase were by now largely depleted and had reached the point of exhaustion in the mid-1980s. The years of strife and destruction had finally exhausted economic reserves and led to the collapse of state finances. The Israeli invasion of 1982 (massive destruction and loss of life in the south, the Bekaa and West Beirut), the war of the (Shouf) mountain in 1983, the battles in Tripoli in 1984-1985, the upheaval of West Beirut in 1984, the war of the camps, the confrontations with Israel in south Lebanon — all these produced new waves of destruction, dislocation, population movements, disruption of activities and increased fragmentation of the economic sphere.
The collapse of state revenues and finances was the most spectacular aspect of this rapid decline. On the income side, the expansion of the sectarian “quasi-states” led to a sharp decline in the tax collection capacity (especially electricity and telephone bills) and the customs revenues of the central government. Customs, traditionally a major source of state income, were seriously reduced as numerous private and illegal ports run by the various militias flourished. Actual customs revenues as a percentage of expected revenues declined from 97 percent in 1980 to 10 percent in 1986.
On the expenditures side, the state foreign currency reserves (around $2.5 billion in 1982) were severely depleted by the very substantial military spending in 1982-1984. Rebuilding and reequipping the Lebanese army, an American project, cost some $1.2 billion. Another serious drain was the increasing costs of public subsidies to maintain local prices of and bread (especially from 1984 onward). This meant heavier and heavier internal borrowing from the Central Bank and Lebanese banks to cover the state budget. The annual budget deficit reached the level of 90 percent in 1986 and the accumulated public debt amounted to 147 billion Lebanese pounds by the end of 1987. The accumulating deficit, the falling exchange rates and the continuous printing of money severely aggravated inflation in 1985 (60 percent) and 1986 (105 percent) and produced hyperinflation by 1987 (425 percent). After a slowdown in 1988 (155 percent), first indications for 1989 suggest a severe rise in the inflation rate as a result of the six months of fighting that began in March.
Fourthly, economic collapse was spurred by the exaggerated growth of the parallel economy and the atomization of economic space. The growth of a parallel economy based on various forms of extortion — smuggling, illegal ports and private customs duties, forced taxation, protection money and racketeering, drug cultivation and trade, arms and ammunition trade — had started to build up as soon as the war erupted in 1975. But up to 1982, the parallel economy was contained at a “reasonable” limit of no more than 20 percent of the total economic activity, according to some estimates.  By the mid-1980s, though, after the new attempt at state reconstruction collapsed, further segmenting political space, the parallel economy was estimated to represent more than 50 percent of all economic activity. 
To give just one example, international reports speak of local production of hashish and opium estimated at $1,000 million for 1987. By international standards, this represents a modest sum, but the amount is equivalent to one third of the entire Lebanese GDP in the mid-1980s. Lebanon has thus become second only to Colombia in the share of drug-related activities in its national economy. 
The combination of these four major factors and the continuation of the internal wars has led to a near-total economic collapse in the mid-1980s. Here we will provide only a few of the major indications of this collapse: The gross domestic product, expressed in dollars, is less than one third its original level. The national income per capita, expressed in dollars, is now less than 13 percent of what it was in the early 1980s. And the rate of exchange with the dollar, a critical indicator for a country that usually imports 80 percent of its consumption needs, has deteriorated dramatically, from 3.4 Lebanese pounds to the dollar in 1980 to 450 pounds to the dollar in December 1989. This has translated into a drastic reduction of imports, which represented in 1987 only 25 percent of their value in 1985, and a cycle of periodic shortages in many critical sectors.
The bill for 14 years of internal wars was finally rendered, and when it had to be settled, it led to virtual bankruptcy. The popular classes, as may be expected, have suffered the most seriously from this brutal collapse. Two major indicators illustrate their dramatic decline into misery. The minimum monthly wage in 1987 represented only 35 percent of its level of 1974, and the average wage only 27 percent of its level in 1974.  And the rate of unemployment has risen from 5.4 percent in 1970 and 12 percent in 1980 to 35 percent in 1989. 
In the space of a few years, brutally and drastically, Lebanon has been thrown from the most privileged upper layer of Third World countries down to some of the lowest layers. Many Lebanese still cannot comprehend the dramatic change, let alone cope with it in their daily struggle for survival.
While many local and regional factors accounted for the intensification of fighting in 1989, this latest confrontation contributed to the destruction and disablement of what remained of Lebanon’s infrastructure. In a severely ailing economy, the sheer size of the destruction, estimated at more than 1 billion Lebanese pounds, combined with weeks of blockade and paralysis of economic activity, the exodus of thousands from Beirut to safer parts of the country and the emigration of more than 70,000 persons out of the country — all this has brought the country to the verge of total social and economic collapse.
The crisis of 1989 represents a watershed in Lebanon’s 15-year trial by fire. If the Ta’if agreement can be supplemented to win support or acquiescence from the major parties, then a momentum towards reconciliation is possible. But if the confrontation continues in 1990 at the pace of this year, then the war system will indeed push Lebanon to a point of politicide as a state and as a society.
 On the pre-1975 economic expansion, see A. Badre, “Economic Development of Lebanon” in C. Cooper and S. Alexander, Economic Development and Population in the Middle East (New York, 1972), pp. 161-207; and S. Makdisi, “An Appraisal of Lebanon’s Post-War Economic Development,” Middle East Journal (Summer 1977), pp. 267-280.
 Salim Nasr, “The Crisis of Lebanese Capitalism,” MERIP Reports 73 (December 1978).
 R. Tabbarah, “Population, Human Resources and Development in the Arab World,” Population Bulletin of ECWA 20 (June 1971).
 Banque du Liban, Bulletin Trimestriel, various issues.
 Rashid Khalidi, “The Palestinians in Lebanon,” Middle East Journal (Spring 1984).
 On political money, see Salim Turquie, “De Quoi Vivent les Libanais,” Le Monde Diplomatique (October 1979); Elisabeth Picard, “Role et Evolution du Front Libanais,” Magreb-Machrek (October-December 1980), pp. 16-39; and A. Zagorin, “A House Divided,” Foreign Policy (Fall 1982), pp. 111-121.
 See ECOCHIFRES 1985 and ECOCHIFRES 1986, various articles.
 B. Labaki, “Pourquoi l’Economie Libanaise se porte mal,” Le Commerce du Levant, January 16, 1984.
 Le Commerce du Levant, Special Economie 1985-1986 and Special Economie 1986-1987, various articles.
 Samir Nasr, “Les Enjeux, Les Choix,” Le Commerce du Levant, December 1987, p. 75.
 Zagorin, op cit.
 E. Saba, “Economic System and Social Policy in Lebanon,” unpublished paper, February 1988, p. 4.
 Marwan Iskandar, “The Influence of War on the Lebanese Economic Behavior,” unpublished paper, April 1987, p. 4.
 Kamal Hamdan, “Les Libanais Face a la Crise Economique et Sociale,” Magreb-Machrek (July-December 1989), p. 27.
 J. Mourad, “Le’Emploi et Ses Problems,” Le Commerce du Levant, Special Economie, 1985-1986, p. 37.