Boutros Labaki*
Table of Contents
Economic Development Before 1975
The Independent State's Economic Role
Assessing the Economic Experience of the Independent
State
The Partial Disappearance of the Sate After 1975
The Presidencies During and After the War
Elements of Future Development Policy
The Goals and Means of Development; Policy on the General Level
Sectoral Goals and Means
Regional Goals and Means
Firstly, for purposes of clarification, we must situate development
policy within the broad areas of economic policy. Development policy aims,
obviously, at development, and affects the entire spectrum of changes in
a society, as well as the mentality of people, in order to increase national
production in a stable fashion.
Economic Development Before 1975
Lebanon's independence in 1943 occurred within a framework of prior
economic development that began to shape the structure of Lebanon's economy
at the beginning of the 19th century. A primary feature of this structure
was the role of Beirut as a service entrepôt between the industrialized
countries and the Mashriq, with services centered around land and sea transport,
international trade, banking, insurance, education, health, tourism, and
technical and scientific services, among others. Under the French Mandate,
Beirut became the economic center of the countries of the Mashriq.
This type of economic development engendered limited growth in commodity-producing
activities - with the exception of the production of silk for export -
until 1929. Likewise, emigration from Lebanon, which began in the second
half of the 19th century, began to play a fundamental economic role at
the end of the century. The services and emigrant remittances, however,
slowed due to the 'crash' of 1929 and World War II. The result was that
the Lebanese economy became relatively marginalized in world markets. On
the other hand, these events also led to growth in agriculture and industry
aimed at the Lebanese and Syrian markets, and Lebanon began producing a
large number of businessmen.
After World War II - and with independence - a group of Lebanese businessmen
emerged who, because of the allied presence during the war and the difficulty
in supplying imports, succeeded in accumulating a sizable amount of wealth.
This was an incentive for the rise of local industry, and this group played
a fundamental role in Lebanon's economic growth in the following decades.
Moreover, as was natural in a country whose economy played an entrepôt
role in the region, these men opted for economic liberalism, both internally
and externally.
The 1943 National Pact divided political powers along confessional lines, and this example was also followed in the fields of social and economic development. A number of significant economic measures took place following independence, the most important of which were:
The distribution of public sector posts among all sects, according to
the National Pact's quota system, likewise played a fundamental role in
assisting groups, regions, and sects that had been the most disadvantaged
in the past. The quota system for public sector posts grew as the public
sector expanded into new fields such as electricity, water, internal and
external transport, health, education, and social services. Meanwhile,
the traditional public sector also grew, both quantitatively and qualitatively.
The Independent State's Economic Role
The Presidency of Bishara al-Khoury (1943-1952):
This period was marked by economic liberalism, to a great extent inspired
by the thoughts of Michel Chiha. Lebanon followed a system of free exchange,
money conversion, and trade. Likewise, strict financial orthodoxy was pursued
with regard to state finances. The state began to follow a policy of expenditures
on public services, of which the Beirut International Airport was the most
important achievement.
The Presidency of Camille Chamoun (1952-1958): This period was also marked by a liberal economy, although it was joined with greater state activity, especially in terms of spending on public needs. On the institutional level, a number of significant measures were enacted, the most prominent of which were the banking secrecy law, the increase in large-scale construction, and the protection of industry. Meanwhile, the state maintained the strictly orthodox financial policy which had existed under President Khoury.
The state began to reap the benefits of its public services, including water, electricity, railroads, tramways, and others. Institutions were established with the goal of assisting economic growth, such as the Economic Planning and Development Council, the Ministry of Planning, the Institute of Industrial Research, the Silk Bureau, the Agricultural, Industrial and Real Estate Credit Bank, and the Independent Fund for Energy. These were established with the objective of financing public service expenditures.
With regard to public services, the country's network of roads was expanded
and improved, as were the telephone, water, and electricity networks. A
construction policy was followed after the 1956 earthquake and the flooding
of the Abu Ali River. Likewise, the state began constructing dams on the
Litani River, and it expanded the thermal production of electricity.
The Presidency of Fuad Chehab (1958-1964): This era was characterized by the linking of economic planning to the concepts of development, social justice, and national unity. Keynesian concepts were grafted on to classical liberalism, which was exemplified by the employment of French IRFED team, the development of the Ministry of Planning, and the establishment of a Central Directorate for Statistics.
State financial policy moved away from narrow orthodoxy, and public spending was transformed into a tool for economic growth as increased subsidies were provided to industry, tourism, and agriculture. This period was characterized by the establishment of a series of institutions with developmental aims: the Council for the Implementation of Construction Projects, the Council for the Implementation of Large-Scale Projects for the City of Beirut, the Fruit Bureau, the Bureau of Animal Production, the Green Project, the Department of Industry within the Ministry of the Economy, the Central Bank, and the National Council for Scientific Research. It was also characterized by the expansion of public education, primarily secondary education, and the Lebanese University.
With regard to public services, the period witnessed a further rapid
expansion of the road network, as well as the health, water, and electricity
networks. The ports of Beirut and Tripoli were modernized, and special
buildings were constructed to serve as offices for employees. On the recommendation
of the IRFED team, the state followed a policy of development planning.
The Presidency of Charles Helou (1964-1970): This period was marked by a series of political and economic crises and attempts to confront them, including the Intra Bank crisis of 1966, the June 1967 Six Day war, and the crises of 1969 and 1970. It was also characterized by a gradual and partial return to classical economic liberalism, and to the gradual abandonment of planned development policies. In its efforts to respond to the various crises, the state pursued a number of policies:
The Presidency of Suleiman Franjiyyeh (1970-1976): This period was distinguished by rapid economic growth interrupted by periods of violent political, social, and economic crises.
With regard to economic policy, some reforms were attempted, including implementing the 1943 decree for the protection of industry, rationalizing the pharmaceutical industry, and providing for the state's taking over of petroleum refineries.
With regard to institutions, the Ministries of Petroleum and Industry,
and of Housing and Cooperatives were established, as were the first credit
banks for medium - and long-term loans. Secondary education and the Lebanese
University also continued to grow and to be modernized, while a Social
Security Health branch was established. With regard to public services,
thermal electric power stations were modernized.
Assessing the Economic Experience of the Independence State
There is no doubt that the role of the State between 1943 and 1975 was not the only influence on economic developments in Lebanon. Regional developments also had an impact on the growth of the Lebanese economy: the Arab-Israeli war of 1948, coups in Syria, Egypt, and Iraq and their positive effects on the Lebanese economy - the rise in oil revenues in the Gulf countries, and the consequences of the 1967 war, all led to a number of trends in the Lebanese economy during this period:
In general, the 1943-1975 period was characterized by a decline in the
economic and social differences between the Lebanese, across the board.
Yet this mostly positive assessment should not blind us to the negatives
in Lebanon's socio-economic situation prior to 1975. This included, externally-oriented
economic growth, insufficient growth in agriculture and industry, and poor
income distribution in social, regional, and sectarian terms. These negatives,
however, did not constitute the main character of economic development;
in reality, their sharpness increased with the gradual disappearance of
the state during the wars and occupations after 1975.
There is no doubt that economic growth within a single state creates
sound political and social relationships through the creation of common
interests among citizens from all regions and sects. In the same way, attempts
at balanced regional economic development, which the Lebanese state undertook
during the 1950s, and which picked up speed in the 1960s and included peripheral
areas - the South, the Biqa` and the North - with Muslim majorities, increased
the state's legitimacy and power in these regions. This gradually changed
the attitude of these areas' inhabitants towards the state, and made many
Lebanese feel that economic mechanisms alone did not suffice to redistribute
wealth socially, even though the correction of inherited regional and social
imbalances, and the providing of more equal opportunities to all individuals
and groups, were desired. Likewise, the new benefits provided to the inhabitants
of these regions - even if only partial - brought to light the disparities
existing between Lebanon and its neighbours, and strengthened the interest
of the inhabitants of these areas in belonging to the Lebanese state.
The Partial Disappearance of the State After
1975
The consequences of the disappearance of the state in the national economy
began to appear at the end of the 1960s. After the war broke out in 1975,
the first institution whose effectiveness became paralyzed was the Customs
Authority. Smuggling became widespread and deprived the treasury of revenues,
subjecting Lebanese industry to the effects of an inundation of foreign
goods.
As the war progressed, paralysis picked up speed in all ministries.
The Ministry of Labour became unable to undertake its responsibilities
with regard to protecting Lebanese labourers. The Ministry of Agriculture
became paralyzed, along with its affiliated institutions, such as the Bureau
of Animal Production, the Silk Bureau, the Fruit Bureau, the Green Project,
and the Agricultural Research Station. The effectiveness of the Ministries
of Trade and Economy, Industry and Petroleum, Water and Electrical resources,
Post and Telecommunications, Public Works, and Transportation were weakened.
The airport and the ports affiliated to the latter ministry fell under
the authority of militias, and the activity of the Ministry of Housing
and Cooperatives diminished due to the scarcity of financial resources
appropriated for it. The Ministry of Tourism stopped performing any important
services because of the impact of the situation on the tourist sector in
general.
This was the situation in relation to bureaucracies with a direct economic
role. With regard to other ministries having an indirect economic role,
the situation was no different. The relative paralysis which afflicted
the Ministry of Justice, for example, rendered economic transactions risky,
since it became difficult to resort to adjudication. The Ministry of Education
experienced a similar situation, as destruction and militia control afflicted
its affiliated bureaucracies. The Ministry of Health was incapable of playing
its role in providing health services.
The central institutions of the public bureaucracy - the Civil Service
Council, the General Disciplinary Council, the Directorate of Research
and Guidance, the Bureau of Accounts, and the State Employees' Cooperative
- were also no longer able to perform their duties, depriving them of much
of their effectiveness. This had a negative impact on economic activity
that was tied, in practice, to all state ministries.
The weakness of the two ministries charged with protecting external sovereignty, the Ministries of Defence and Foreign Affairs, had an equally negative impact on economic activity. The fragmentation of the army deprived the state of a decisive tool to provide citizens with the security required to undertake economic activity, while the decline of the Foreign Ministry deprived Lebanon of the ability to negotiate and implement commercial agreements.
The current economic crisis in Lebanon, which broke out in the summer
of 1984 with the drastic fall in the national currency, is directly tied,
due to internal reasons, to the collapse of the state and its increasing
inability to control the sources of its financial revenues because of militia
control. This led to the increase in the state's debt - especially that
of the Central Bank - vis-à-vis commercial banks, and an increase
in the printing of money. This state of affairs was the principal contributor
to inflation, and the collapse of the value of the Lebanese pound against
foreign currencies, especially the U.S. dollar.
The Presidencies During and After the War
It is useful here to remind ourselves, if only briefly, of the most
important characteristics of development policy during the civil war (1975-1990)
and at the beginning of the Second Republic (1990-1993):
The Presidency of Elias Sarkis (1976-1982): The Sarkis presidency was characterized by 'coexistence' between the state of war and attempts at reconstruction. The economic logic which determined development policy during this period was neo-liberal, and concentrated on encouraging investment and giving attention to the social problems created by the war, as well as its victims. Economic policy in this period was characterized by an attempt to benefit from oil revenues through reconstruction, the establishment of new banks, and the receipt of a large amount of loans and international and Arab grants for construction and development.
With regard to institutions, this period was characterized by the establishment of the Council for Development and Reconstruction (CDR), a Housing Bank, and Agricultural Development Bank, an Independent Housing Fund, and an institution for guaranteeing investments from non-commercial risk. Other institutions were modernized, such as the Banking Supervision Committee and the Lebanese University.
With regard to services, the coastal highways from Ma`amaltayn to Chekka, and from Khaldeh to Damour, were modernized; the capacity of the electricity and telephone networks was doubled, and the port of Beirut and Beirut Airport were expanded.
Development policy was also characterized by soft loans given to sectors
hurt by the war, such as industry, hotels, hospitals, and other sectors.
The Presidency of Amin Gemayel (1982-1988):
The Gemayel presidency was marked by attempts at economic growth through
the establishment of the Council on Foreign Economic Relations - which
aimed at modernizing the external role of Lebanon's economy - and by an
extravagant monetary policy which contributed to the decline of the Lebanese
pound. Projects that were begun during the previous presidency were continued,
such as the expansion of the Beirut port and the airport, hospitals, and
the electricity, water, and telephone networks. The almost constant political
and military crises which accompanied this period, however, impeded most
of these development policies.
The Transitional Period between the First
and Second Republics (1988-1990): This period was characterized by
a severe political crisis which did not allow either of the two governments
that ruled Lebanon at the time to undertake any meaningful development
policies. These governments were preoccupied with trying to provide a minimum
of daily needs to citizens.
The Presidency of Elias Hrawi (1990-1993):
The beginning of the Second Republic was characterized by a development
policy based on the concept of balanced development, influenced by the
1943 Pact, and integrated into the text of the Taif Agreement and the new
constitution. With the gradual end of the war, the state began to rebuild
itself. It reactivated the CDR, authorizing it to prepare a plan for rebuilding
infrastructures and providing for economic recovery. This plan was completed
at the end of 1991, and was passed by the Karamé government in spring
1992. The state, through the CDR, worked to mobilize external funding for
construction, and was able to obtain almost $1.5 billion.
With regard to implementation, the state began to stress the rehabilitation of infrastructures such as electricity, telephone, water, and sewer systems, as well as disposal of solid waste, and repair and construction of roads. At present, it is working to rehabilitate government buildings, expand the Beirut port and airport, improve the infrastructure in Beirut's suburbs, rebuild and improve the buildings of the Lebanese University, complete the coastal highway, and implement the Beirut-Masna` highway project and the Beirut ring-highway project.
The state has also begun rebuilding Beirut's old downtown commercial
center, under the control of SOLIDERE Company. It also began to return
the displaced to their homes through activity by the Ministry of the Displaced
and the Fund for the Displaced, and is striving to reactivate institutions
for development and housing loans. In addition, it is seeking to provide
commercial banks with a greater role in development. The state is also
striving to achieve privatization in small steps, particularly in the rebuilding
of Beirut's downtown area, the sale of cellular telephones. and waste collection,
removal, and treatment. On the external front, the state has successfully
tried to coordinate the re-opening of foreign markets - with Jordan and
Syria in particular - through a series of agreements.