Lebanon: Another Example of ‘Not Real Statism’


By Jean Marc Moujabber on Medium

Long have we had to listen to experts’ mischaracterization of the Lebanese economy. “Lebanon is libertarian haven”, “there is no state in Lebanon”, “Lebanon is a failed free-market economy”, they declare, before flooding the masses with recycled solutions from the 20th century that are proven to always end in disaster. But what’s evident is that those who cannot properly diagnose a given situation cannot possibly know how best to address it.

Let’s begin by defining Libertarianism and figure out if it’s the best way to describe the Lebanese model.

In short, Libertarianism stands for maximizing individual liberties and minimizing the state’s role. Private property is sacred and inviolable, and the use of force is only justified to defend person and property against violence, with no exceptions granted to the government to violate the golden rule. A Libertarian society would see no state intervention in the market or in individual lives, no state-owned monopolies. Market transactions and social relations are purely voluntary and exempt from any third-party (state) intrusion, and the economy is characterized by private initiatives and businesses.

It is fairly obvious then to the non-dogmatic observer that present-day Lebanon cannot possibly be classified as even remotely Libertarian. The Lebanese state is very much present in the market, and its interventions can not go unnoticed. The state owns a plethora of awfully managed monopolies that serve to make citizens’ lives miserable, and its impact on the market leaves economic calamities in its wake.

State-owned Electricité Du Liban

State-owned Electricité Du Liban, responsible for the production, transmission, and distribution of electric power on all Lebanese territories, racked up $40 billion in debt while power is on for less than 8 hours a day. This is due to a lack of fuel to operate the power plants because the state failed to adjust the subsidized electricity pricing for decades. Rather than correcting the billing rate, and allowing the operation of the power plants at full capacity (for coverage of ~20 hours/day), the ministry chose to rent power ships as an extremely expensive short-term solution while new power plants were being built. The result was a $2 billion yearly deficit, a degrading service, no new power plants, no money to operate the existing power plants, no money to rent power ships any further. On top of that, the Ministry of energy took steps to make it harder for citizens to install solar panels on their rooftops, mandating a ministerial permit under the guise of “public safety”.

Alfa & Touch, Lebanon’s telecom duopoly

The telecommunications sector is also a victim of state monopoly whereby data service providers have to buy internet bandwidth from the Telecoms Ministry then compete with government operators that are exempt from a 50%+ taxation that effectively kills market competition. Lebanon is notorious for its slow internet connection and its unreasonably expensive telecom pricing. With market entry impossible for telecom companies, the government took back management of the country’s two state-owned mobile phone networks in May 2020, further cementing the state-sponsored telecom duopoly.

Beirut’s devastated port, following the blast of August 4th 2020

Beirut’s port, the second largest and busiest on the Eastern Mediterranean, came under direct ownership of the Government of Lebanon at the end of the civil war in 1990. Built and managed by a private French company one century prior, the port suffered from a pervasive culture of negligence, petty corruption, and blame-shifting under state ownership, with the other coastal ports rendered redundant so as not to compete with the port of Beirut. For years, 60% of all imports went through the Port of Beirut, while secondary ports like Tripoli and Tyre barely saw any activity, to the detriment of their local communities barred from effective economic participation. Mismanagement culminated in the devastating explosions that rocked the capital on the 4th of August 2020, wiping out the port and half of Beirut along with it, killing 207, injuring 7500 others, and leaving 300,000 people homeless. The blast ranked among the biggest non-nuclear explosions ever, the equivalent of 0.8kT of TNT. Property damage was estimated at about $15 billion.

MEA Airbus A320 plane

Similarly, Lebanon has only one operational civilian airport, also under the direct management of the state, and mismanaged dreadfully as well. Cheap airlines are phased out via taxation schemes favoring the much more expensive Middle East Airlines (MEA), owned by Lebanon’s central bank, that lately stopped accepting payments in Lebanese pounds, the very currency that is issued by the very central bank that owns MEA. Recently in 2017, the parliament passed a departure tax hike of about 20% to fund the salary hike that offered public sector workers new salary packages, incidentally a few months before parliamentarian elections. In a country that relies heavily on tourism (20% of GDP), disincentivizing potential tourists with expensive flight tickets might seem like a counterproductive strategy, but not to the insolent state.

The real estate market was also grotesquely distorted by subsidized housing loans. Ever since the “Banque de l’Habitat” was conceived, Beirut and coastal Lebanon were turned into a sea of concrete, with poor construction quality and half the apartments left empty. Combine the subsidized loans with rent control laws that came after the hyperinflation at the end of the civil war, and people using real estate as a hedge against inflation, the real estate market got so distorted and prices spiked for a while, leaving a vast majority of people unable to purchase houses without getting into a lifetime of debt. Land lost its natural function of providing shelter, and thousands of years of development of housing architecture that previous generations strived to maintain were disrupted.

Beirut’s archeological site, now buried underneath Solidere

The appropriation of private property became a widely accepted occurrence, and some would even go as far as justifying it. The most flagrant instance of expropriation is Beirut’s downtown. By agreement with the government, Solidere was granted special powers of eminent domain and was tasked with the reconstruction of the capital’s central district that was ravaged by the devastating civil war. Previous owners of the downtown area were barely compensated for their lost property that is now worth millions of dollars and they were indemnified with shares in the company. The central district that was bustling prior to the civil war was turned into a ghost town to fill the coffers of state officials. To make things worse, rumors have it that the reconstruction efforts came at the expense of the historical Law School of Beirut that was allegedly encountered during the excavations, pillaged, destroyed and interred again.

General Labor Union headquarters in Beirut

Lebanon is plagued by excessive licensing and is home to more than 150 syndicates, orders, unions, and associations that encompass nearly all thinkable professions. While each claims to look after its associates and strive to uphold their best interests, they’re only hurting their members by not allowing them to compete against each other and fixing quotations for each profession. Barely any vocation is left to honest market competition, some syndicates even monopolizing entire professions and banning non-enrolled graduates from being employed in their respective fields. Engineers not enrolled in the Order of Engineers cannot approve construction maps. Nurses not enrolled in the Order of Nurses cannot be employed. Dentists must comply with quotations set by the Lebanese dental association. Lebanon’s workplace is light years away from being a free market.

Once upon a time likened to the banking sector of Switzerland, and despite nominally maintaining banking secrecy laws, Lebanon’s banking is not even remotely free from state intervention. Through financial engineering schemes, the Central Bank of Lebanon (forcibly) lured the banks to lend it their dollar deposits in return for high-interest rates and then proceeded to grant them to the central government that squandered them on poorly planned projects like water dams void of water, a crumbling power sector that can barely provide 8 hours of electricity a day despite the $2 billion yearly deficit, electoral campaigns, bribery, kleptocracy. The central bank managed to secure more and more funds throughout the years by manipulating the interest rates to attract depositors and investors, thus distorting the market signals and raising the time preference of citizens. The Ponzi scheme was exposed in late 2019 when people took to the streets and following a bank run, it was made clear that people’s life savings were gone and a hyperinflation episode was setting in while the state monetizes its debt to cover for bank withdrawals. $110 billion of deposits had been spent, and the central bank is now down to only the $14 billion of required reserves. Depositors have to suffer from de facto capital controls that vary from one bank to another.

Lebanon’s annual inflation rate, Real (red) vs Official (blue)

Lebanon has been witnessing a horrible episode of inflation since late 2019 when the state began printing money to cover its exorbitant expenditures after it defaulted on Eurobond payments and lost its ability to secure further loans. Printing money seemed like the obvious plan of action for the state instead of cutting public expenses, despite the scandalous waste in the annual general budget. Contrary to the popular opinion that misinterprets the causes of the crisis, citing sectarianism and a war of cultures, the budget deficit is the core of all the economic and social catastrophes.

One would think that state expenses would be planned according to state revenues, but more often than not, the opposite is what actually happens. The politicians plan their spending in accordance with what earns them votes in the coming elections, be it social programs, kleptocracy, patronage, and overstaffing the public sector. The Lebanese public sector was purposefully inflated to accommodate more than 300,000 public employees, or 25% of the total workforce, which makes the Lebanese state the biggest employer in the country (so much for a state that “doesn’t exist”). In comparison, the state employs 12% of the national workforce in France or Germany and only 6% in Japan. State expenses do not stop at the 8,000 billion LBP public sector salaries (prior to the 2017 salary hike); they include but are not limited to:

  • Food expenses for the presidency: 538,200,000LBP ($357,015)
  • Transportation fuel for parliament: 1,800,000,000LBP ($1,194,030) equivalent to 72,000L of gasoline
  • Service and cleaning expenses for parliament: 1,215,000,000LBP ($805,970)

The general budget also incorporates expenses for institutions that no longer exist, including but not limited to:

  • Salaries of employees in the Railway and public transport authority: 16,108,951,000LBP ($10,685,871). There are no trains nor railways in Lebanon anymore and merely 40 public buses that are operated by state institutions.
  • Directorate and factory of sugar beet budget: 30,497,690,000LBP ($20,230,640). Sugar beet is no longer subsidized since 2005 and the factory was closed in 2013. On top of that, the Grain and Sugar Beets Directorate also receives 11,615,190,000LBP ($7,704,935) from the Ministry of Economy and Trade to cover its “deficit”.
  • The Elissar agency was set up to develop Beirut’s southwestern suburbs but all work stopped in 1997 due to political disputes and difficulties securing financing. Although the development project was shelved, the agency has retained an annual budget of 2,780,775,000LBP ($1,844,627).
  • The Supreme Council for Privatization: 4,576,523,000LBP ($3,035,836). The council stopped working years ago.

Add to that useless expenses that can easily be cut out, including but not limited to:

  • Plants and seeds expenses for nearly all public institutions, amounting to 185,640,000LBP ($123,144)
  • Holidays and protocol representation for nearly all public institutions, amounting to 10,246,800,000LBP ($6,797,214)
  • Rent of the ESCWA building: 12,780,000,000LBP ($8,477,612)
  • Rent of the FAO offices: 941,400,000LBP ($624,478)
  • Bonuses, additional allowances, family compensations, and various miscellaneous unspecified expenses amounting to billions of Lebanese pounds, despite the fact that the state is bankrupt and is running a huge deficit.
  • $6 billion (not included in the budget) spent on subsidies in the past year, when studies show that $1 billion would have been enough to secure the basic needs of the entire population, while most subsidized products ended up missing from the market and smuggled all across the globe to be sold for higher profits.

Public school tuitions are on average more expensive than private ones (4,500,000LBP vs 3,750,000LBP) yet education quality is much poorer despite public schools being overstaffed.

Public hospitals are notorious for their bad services and cannot compete with private hospitals.

The Lebanese passport is one of the most expensive worldwide, having an equivalent fee of $200 valid for 5 years, despite it ranking 180th out of 198 countries in terms of passport power. Its holder can enter only 11 countries visa-free, 33 visa-on-arrival, and the remaining 154 require a visa for entry.

… and these don’t even begin to scratch the surface of the wasteful spending in the general budget.

National Social Security Fund headquarters

To fund these colossal expenses, the state turns to its favorite hobby when it’s not too busy running the money printer: collecting taxes. Taxes take up a huge chunk of workers’ purchasing power. From a worker’s salary is deducted a progressive income tax ranging from 2% to 25%, then the devious mandatory National Social Security Fund (NSSF) tax whereby the worker pays 3% of his income and his employer pays an additional 23% of the base salary as well. That’s an effectively implicit 30% tax that goes to the extremely inefficient NSSF riddled with bureaucracy like any other state institution that delays the reimbursements of beneficiaries for years due to a lack of funds. Most employees seek out other private insurance companies in addition to the mandatory NSSF to safeguard against emergencies. 30% of any salary could afford the highest quality insurance policy, and then some for savings even. VAT stands at 11% on all commercial transactions, import tax can go up to 100%+ on products that the state deems “luxuries”. At some point in the recent past, 60% of fuel price was taxes. A typical citizen could be paying up to 50% in taxes doing daily activities without even realizing it for very little (if any) compensation from the state in return.

Banque Du Liban, Lebanon’s central bank

One can’t bring up monopolies without mentioning the greatest and most immoral monopoly of all, the ultimate pillar on which the state rests: central banking. Through its monopoly on money issuance and the inflationary tools at its disposal, the state exerts a depraved control over citizens’ time preference, making savings an impossibility over time and transforming society into a consumerist beast. By pursuing an inflationary monetary policy to fund its spending, the state robs banknotes holders of their life savings and their purchasing power, effectively setting a decivilization process in motion with what can be described as a vile aggression against private property. Saving is an essential prerequisite to creating wealth and advancing civilization, and once saving is no longer allowed, the very fabric of society begins to disintegrate as has been made evident in the numerous hyperinflation episodes throughout history.

Faced with a state that spread its tentacles across all economic sectors, where exactly is this fabled Libertarianism? How can a “non-existent” state be the biggest employer in the country? Where is the free market that is void of state intervention?

Lebanon can best be described as a socialist dystopia, where all sectors of the economy are either owned or heavily regulated by the state, with absolutely no upside of welfare or social programs for the average citizen. Alternatively, the public sector can be described as one huge unemployment subsidy for school dropouts via make-believe employment with zero productivity.

The reason “experts” insist on their frail and factually inaccurate narratives is most likely a biased and foolish identification with the state. After a century of indoctrination, the typical man cannot imagine life without a state controlling every aspect of society, and he sees the state as a necessary and absolutely good institution. “We are the state”, proclaims the good citizen while exiting the voting booth, “therefore the state can’t do no wrong. The state is the incarnation of the people’s will, and if society is not a utopia, it must be due to the absence of a state.” Much like the fabled communism, whenever it fails, it becomes not-real-communism; when statism fails, it turns into not-real-statism, because according to the brainwashed citizen, the state is the ultimate tool for good and no harm could ever stem from it. Truth is, it is not that the system is not functioning. It is functioning perfectly in fact, which is why Lebanon descended into hell.

One thing needs to be made crystal clear: we [the people] are not the state. The state is a group of people who, by means of opportunism, propaganda, and fake promises, have managed to win a popularity contest. Given that only psychopaths yearn for positions of authority, it’s an almost certain guarantee that the state will always be made up of the absolute worse of every society, and good deeds are not to be expected from those. History has proven over and again that it is crude and naive to trust in the goodness of those wielding political power.

The false narratives also showcase a statist win over the past century. After enjoying a rather successful spell under a rather free-market economy in the 1950s that made Lebanon renowned internationally for its prosperity, then came the era of centralization and nationalization of practically all the industries [previously mentioned] and the public sector began to grow exponentially and government spending increased incessantly. Yet the denomination of a free market stuck, because “it says so in the constitution”, and because the state managed to shift the national discourse towards sectarian tensions, following the principle of divide et impera. For decades now, the Lebanese people have been conditioned to think of themselves as feuding groups rather than individuals pursuing their own goals. By constantly importing trouble, the rulers keep the people under a state of sedation and fear, making them easier to enslave and control as they rally behind their tribal drives. Thus, the tribe becomes paramount at the expense of the individual, who finds himself stuck in a vicious circle of animosity and unable to follow his personal aspirations in life.

With the 2022 parliamentarian elections approaching, many Lebanese are betting on electing a completely fresh ruling class to guide Lebanon out of the economic hardships. However, disappointment is in store, as most voters remain unaware, or in denial, that the gruesome economic crisis had been orchestrated by a statist encroachment on all vital sectors of the economy. Recovery can only be achieved by private initiatives with incentives to succeed, and with the individual back as the focal center of society. Reliance on the state should be minimized as much as possible, and further statist intervention in the market should be opposed at all costs. The next elections, at best, will serve to replace the current set of demagogues in parliament with another, similarly made up of charlatans who promise all kinds of social plans to help the people. Unfortunately, after the devastating economic crisis, people driven by emotionalism need a scapegoat to vent their anger rather than actual solutions; and what better scapegoat than the “greedy” traders and business owners? The state becomes the savior as everyone sees it as the tool to implement the plans and policies they believe are essential, just, and fair.

Whatever the result, the Lebanese people will learn the hard way that it’s impossible to vote to change the laws of economics, and they’ll come to regret confusing an inefficient state with a non-existing one. Hopefully, they’ll eventually learn to accept and seek a non-statist framework, albeit too late, to organize society away from central planning and coercion. And to everyone looking forward to participating in the next national popularity contest: If you vote, you have no right to complain. You want a master, and you’ll get one.

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