Eight years after the end of the war in Lebanon, the discrepancy between free minds and free markets is growing ever sharper. Since 1992, Lebanon’s billionaire prime minister, Rafiq al-Hariri, has been the individual most responsible for outlining an economic program for the post-war era. The prime minister has not hidden his admiration for laissez faire principles. In contemporary Lebanon, however, the free market is a most uncertain quantity.
The son of a peasant from Sidon, Hariri made his initial fortune in Saudi Arabia, an experience that taught him the advantages of personal initiative. The Saudi experience also showed Hariri, despite the remarkable success of his first effort (he built a luxury hotel in Ta’if in record time, an exploit which earned him the friendship of then Crown Prince Fahd), that fortunes in Saudi Arabia are byproducts of official approval and preference. Competitive instincts are held in check while personal ties assume primacy in the quest for lucrative contracts in an environment that forbids challenges to the established order.
In Lebanon, Hariri has been unable to reconcile this contradictory legacy of private initiative and state imperiousness. Although he supports privatization and minimal government controls, Hariri has presided over unparalleled state intervention in political and economic affairs. Despite his attachment to free market values, Hariri is remarkably intolerant of those who disagree with his vision. The prime minister’s skin is as thin as that of another autocratic free marketeer, Mahathir Muhammad of Malaysia, whom Hariri invited to Beirut last year to bestow benedictions upon the renascent Lebanese miracle.
When Rafiq al-Hariri came to power in October 1992, his principal objective was to restore economic confidence. The primary barometer of confidence was, and remains, the value of the Lebanese pound. Throughout 1992, the pound’s value fluctuated wildly in the wake of the Lebanese central bank’s decision to reduce its support for the currency. After Hariri’s appointment, however, the central bank, headed by a Hariri ally, intervened more forcefully in the markets. The prime minister’s credibility quickly attracted investments from abroad, increasing demand for the pound and stabilizing the local currency.
Hariri’s reconstruction program soon assumed top priority. With the economy in shambles, it was unclear where Hariri would find the required funding for this ambitious project. In March 1993, he indirectly revealed his intention to rely on the private sector to rebuild Lebanon. At the time, the Council for Reconstruction and Development, a Hariri-controlled body that acts as a reconstruction super-ministry, presented a $10 billion, ten-year plan entitled Horizon 2000.
The plan, actually an assemblage of spending targets, divided the ten-year period between 1993 and 2002 into two stages. In the first stage (1993-1995), the government intended to spend nearly $3 billion, primarily on rehabilitating and upgrading the country’s damaged infrastructure. During the second phase, spending was to be diverted to education, health care, agriculture and industry.
Critics of Hariri’s plan denounced its vague spending targets. Indeed, what began as a $10 billion program soon grew into a $15 billion extravaganza. The nature of spending also came under attack: Hariri was accused of focusing on infrastructure at the expense of under-funded social sectors of Lebanon’s crippled economy. Given the multiple socioeconomic crises afflicting Lebanon in the immediate aftermath of the war, such criticisms were legitimate. Hariri responded that social spending would increase by 1996 when the government began generating budget surpluses.
This was a red herring. From the outset, Horizon 2000 was an optimistic mirage: In order to achieve its spending targets, economic growth rates would have to increase to unrealistically high levels of 15 percent per year. Hariri’s objective was to insure approval of the first phase of his plan — the rebuilding of infrastructure — and then to lure in private-sector investment. The second phase was always subordinate to, and contingent upon, the first. Hariri gambled that a peace settlement with Israel would be reached by 1996. Peace was central to Hariri’s vision; his ultimate intention was, and remains, ensuring Lebanon’s role as the nexus of the Middle East services sector.
Hariri lost his wager. Seven years after Madrid and five years after Oslo, peace in the Middle East remains illusory. In the absence of a regional settlement, Hariri’s reconstruction plan has landed Lebanon an estimated $15 billion in the red between domestic and foreign debt. Unable to cut spending, the government has instead concentrated on increasing revenues. The budget deficit is unofficially estimated to be 40 to 50 percent of state spending. Interest rates, which have declined in relative terms, remain high. Lebanon’s increasingly dire economic picture has all but choked off much needed domestic and foreign investment.
High and Low: The Post-War Ruling Class
To meet Rafiq al-Hariri in his home is to understand the meaning of abrupt social mobility. The prime minister’s brusque manners exude power. The corridors of Hariri’s villa are awash with courtiers. Associates, be they ministers or less substantial satellites, are treated with the same easygoing disdain. Although head of the government, the prime minister continues to act like the boss of a conglomerate. Hariri’s motorcade — that preeminent Lebanese gauge of post-war status — is the grandest of them all, stretching for hundreds of meters and bristling with anti-bomb devices deployed atop accompanying vehicles. An ambulance follows in its wake.
Hariri’s villa, purchased from a prominent Beiruti business family, has been extravagantly outfitted by European interior decorators. The domestic help is imported from South Asia. Success has been carved into every detail of the villa’s many rococo salons. Ponderous paintings and tapestries lurk in the background, and all is surrounded by thick drapes preventing any incursion of natural light for fear of an attempt on the leader’s life. Colossal bouquets of fresh flowers abound, competing for space with numerous photographs set in ornate silver frames. Invariably, the photographs have a misty quality radiating sensitivity: through the ethereal haze one contemplates the prime minister as patriarch, surrounded by his wife and children.
Let Them Eat Money
Given his current wealth and humble origins, it is remarkable that Hariri has paid scant attention to Lebanon’s declining social conditions. In its increasingly unsuccessful efforts to cut the budget deficit, the government has repeatedly mandated across-the-board increases in indirect taxation and financial penalties, which hit fixed salary earners the hardest. Meanwhile, corporate taxation remains low (10 percent), a sign of the government’s stubborn belief in future investment. The introduction of a graduated income tax is not even on the policy agenda; the prime minister and the wealthy members of the political class would reject it.
Lebanon’s dire economic situation encourages the widespread perception that the government is indifferent to the human side of reconstruction. A much-publicized study commissioned by the UN’s Economic and Social Council for West Asia, and prepared for the Copenhagen conference on social development in March 1995, found that approximately 1 million of Lebanon’s 3 million citizens live below the absolute poverty line, estimated at $618 per month.
Rather than addressing the implications of the report, the prime minister instead sought to discredit it by mandating a government body, the Central Statistics Adminstration, to prepare a rival study of household incomes. The results were even more alarming than those in the ESCWA report: 40 percent of households were found to earn monthly revenues of less than $533.
Despite these statistics, the Lebanese are not about to revolt against their social and economic predicament. Somehow, the economic situation is not quite as bleak as the figures suggest. Nonetheless, social dissatisfaction has been palpable since 1995. The main target of popular displeasure has been, unsurprisingly, the government’s free-market economic policies. The reaction is justified inasmuch as the government, to attract investment, has lowered investors’ potential costs while increasing overall social costs.
A profound misconception persists that the Lebanese economic system is genuinely free. It can more accurately be described as oligopolistic. Major industries and economic sectors are controlled by leading political figures, a relatively small coterie of large entrepreneurs and businessmen in addition to prominent families. This is hardly new; Lebanon was always managed in this fashion. The war simply replaced one ruling class with another.
The new twist, however, is the expense of the present system. The government commonly dispenses with competitive bidding for major contracts. Instead, individuals from different centers of power in the country and Syria are brought into lucrative contracts to partake of their (naturally inflated) proceeds. This spoils system has undermined confidence in Lebanon’s reconstruction and constitutes a major obstacle to further investment. Hariri often complains that the nature of the Lebanese system prevents him from introducing reforms. Perhaps. The prime minister forgets, however, that he is one of the key architects of the post-war order, as well as its main beneficiary.
Taking Society in Hand
Embarrassment breeds defensiveness. The members of Lebanon’s post-war ruling class have been united by a shared understanding that, unless they gain control of the social and political system, everyone may lose. The elites’ response to crisis has employed both the carrot and the stick. Hariri’s reconstruction program was to have been the biggest carrot of them all. The gradual economic downturn and general dissatisfaction with the post-war Lebanese economy, however; has persuaded representatives of state power to resort to the stick.
One of the first targets of the government’s stick was independent labor. Given Hariri’s desire to neutralize opponents of his economic program, the government has sought, since 1993, to weaken the main independent labor confederation, the General Confederation of Lebanese Workers. In 1997, it helped engineer a split in the confederation. Although the body elected a Hariri opponent in July 1998, it was subsequently transformed into another playing field for the ruling class. The confederation, which survived the war relatively intact, has been effectively defanged; it can no longer influence the government’s social policies.
The political class has further augmented its influence by buying into the traditionally lively and independent Lebanese press. The main threat to press freedom is not so much political pressure as a lack of funds; because the bulk of advertising revenues goes to the audiovisual media, newspapers are especially vulnerable. This situation has enabled Hariri to buy a significant stake in Lebanon’s most prominent daily newspaper, al-Nahar.
It is the broadcast media, more so than the press, that have attracted the attentions of the ruling class, particularly since most Lebanese get their news from television or radio. At the end of the war, Lebanese viewers could choose from among dozens of television and radio stations. All of these, with the exception of the official Télé-Liban and Radio Liban stations, were established illegally, often by wartime militias and their allies. When the government regained control of public affairs, it decreed that television and radio stations must be accorded a legal status through licensing procedures, with the government acting as the final licensing authority. In September 1996, the government pronounced that only four television and eight radio stations (other than Télé Liban and Radio Liban) could use Lebanon’s airwaves. It then licensed only those stations in which leading members of the political establishment had financial interests. In one remarkable case, the television station belonging to Speaker of Parliament Nabih Berri was granted a license despite the fact that it was not yet operational. Hariri, who owns a station of his own (Future Television), had no choice but to accept an equitable division of the spoils.
Lebanon’s political leadership has also attempted to limit the independence of civil associations in two ways: Either officials have intervened directly in the affairs of associations or the government has simply refused to acknowledge the establishment of new associations. Direct intervention has not been completely successful: Professional associations, notably those representing lawyers, engineers and doctors, have resisted state control more effectively than economically based associations, which have been less willing to challenge the prime minister, whose economic views many of their members share.
More scandalous has been the government’s unconstitutional reinterpretation of Lebanon’s law concerning associations. Associational life in Lebanon is governed by a liberal Ottoman law of 1909 that applies to political and non-political organizations alike, obliging members of new associations to inform the government of their establishment and to submit their bylaws and a list of members. No other formal authorization is required. Since the end of the war, however, the government has arrogated to itself the right of approval, hence the right to veto, all new associations. This practice is neither authorized by the 1909 law nor by the constitution’s Article 13, which guarantees freedom of association.
The Faces of Janus
Like most modern states, Lebanon is an invention. Its system was designed, in a typically Levantine fashion, by two slippery old gentlemen. In 1943, the Maronite Christian president, Bishara al-Khouri, and the Sunni Muslim prime minister, Riyad al-Sulh, reached an unwritten understanding known as the National Pact, which divvied up key government offices among Lebanon’s leading religious communities. It also barred Christians from aligning themselves too strongly with the West, while preventing Muslims from joining forces with the wider Arab world. The dual nature of Lebanese society was thus formalized.
One of the ideologues of the pact was Khoury’s brother-in-law, Michel Chiha. Many of the philosophical principles underlying the conception of an independent Lebanon are his. A banker, Chiha also owned one of Lebanon’s leading French-language newspapers, Le Jour, in which he methodically presented his vision of independent Lebanon’s political and economic role. The influence of Montesquieu was obvious: For Chiha, Lebanon was primarily shaped by its history and geography, which combined to forge a distinctly Lebanese character that shaped Lebanon’s destiny. Since the time of the Phoenicians, Chiha argued, the Lebanese have been middlemen. Their talent was commerce, not industry or agriculture. If Lebanon was to prosper, it had to be a center for services in the Middle East. Hence, its economy had to be open and unfettered by excessive controls.
This concept fit neatly into Chiha’s vision of minimal state authority. As he saw it, the religious communities in Lebanon, through the contending loyalties they aroused, would remain more powerful than the state. Chiha believed there were two possible methods for administering Lebanon: either through a powerful government capable of blunting the differences between the communities by force, or through a weaker system based on communal compromises. Chiha understood that religious communities’ gains would be the state’s losses, and vice versa. Yet Chiha sought to avoid authoritarianism. Far more natural was a system in which the government, by acting as a forum for communal representation, balanced the religious groups without dictating to them.
The great subtlety of Chiha’s vision — and its consequent misinterpretation — have given rise to the glaring contradictions in the current Lebanese system. In a bizarre way, Hariri’s model is an ersatz derivative of Chiha’s laissez faire vision. The prime minister has failed to grasp that the real source of Lebanon’s economic, political and cultural openness is the composition of Lebanese society. While Chiha saw the system as a reflection of Lebanon’s social structure, thus a product of compromise, Hariri has imposed his vision by force. On a daily basis he reveals, Janus-like, his two faces: He wants an open economy, but cannot prevent it from being run, to his great advantage, as a cartel. He wants a system that will require fewer government controls, but is unwilling to relinquish power.
Is the present system any worse than that which existed before the war? It is always best to avoid nostalgia: The pre-war economic boom in Lebanon was largely the result of regional realities, not enlightened economic policies. Yet the members of the prewar political class, with decades of experience behind them, had a clearer sense of independent Lebanon’s origins. In general, there was a balance of power between members of the political leadership and a more modest sense of the limitations of individuals’ actions.
Hariri, in contrast, plainly considers himself a revolutionary force in Lebanese affairs. The prime minister probably expects that, once the Syrians leave, he will be the prime shaper of the new Lebanon. He may well be correct; certainly, the power of many of his leading rivals will be diminished without Syrian backing. A bit of advice is in order, however: Far more capable men than Rafiq Hariri have failed to impose their views on Lebanon. For all his talents, Hariri will fail unless he takes a closer look at the society he purports to represent. The Lebanese have taken his measure: What they see is a man working at cross-purposes.