An Interview with Dr. Ghassan Dibeh: Expert Analysis on Lebanon’s Economic and Financial Stability

December 07, 2018
An Interview with Dr. Ghassan Dibeh: Expert Analysis on Lebanon’s Economic and Financial Stability

Speculation is rife across Lebanon over the future of the national economy, the banking sector, and state finances. As part of its efforts to spur constructive dialogue on pressing national issues, LCPS conducted a series of interviews with economists who have varying perspectives on Lebanon’s economic, fiscal, and financial future. In this installment, we interviewed Dr. Ghassan Dibeh, professor of economics and the chair of the Department of Economics at the Lebanese American University. He argues that established political interests in Lebanon will not find it in their interest to address core deficiencies in the national economy, necessitating the adoption of an approach divorced from focused policy-making, one that instead centers on broader, fundamental changes in how the national economy is administered, in particular tax collection and revenue management. We invite you to read the following transcript of the interview, which has been lightly edited for clarity.

In recent months, Lebanese news has been dominated by rumors concerning the sustainability of the national economy. How do the economic challenges Lebanon is currently experiencing differ from the challenges of the past, both in terms of internal and external factors?

I don't think we need to conduct a historical overview of the challenges of today versus the past, but I can say at present we are witnessing a structural economic crisis that is multifaceted: A secular stagnation of the economy; a rise in unemployment, especially youth unemployment; dominance of low productivity sectors; a widening gap between classes as a small minority receives higher and higher shares of wealth and income; and finally an increased financialization of the economy with ever increasing fragility due to high public and private debts, high interest rates, and balance of payments stop-go dynamics. In this sense, throughout its history, Lebanon has likely never experienced the convergence of such economic dislocations, which makes the current crisis unique and at the same time difficult to tackle and solve.

What are the three key economic variables by which you would define a crisis in Lebanon, and by which indicators would you measure them?

The crisis is multidimensional and structural, permeating the economic fabric at all levels. Hence, it may not be useful to single out three or more indicators to describe it or to fully appreciate its depth and diffusion. As for indicators, I would add to the above—which can be represented by unemployment measures, GDP growth, interest rates, wealth Gini coefficient, and other measures—the World Economic Forum's Arab World Competitiveness Report 2018, in which Lebanon ranked 105 out of 137 countries and ranked last among the twelve Arab countries mentioned in the report. You can see further analysis of that in my article in Al-Akhbar dated September 3, 2018.

International financial organizations repeatedly voice concern about the sustainability of Lebanon’s economic situation. If these concerns do not make clear the necessity of reform in the minds of political actors, is there a tipping point that could facilitate political collaboration on necessary reforms?

I believe that there is "political collaboration" as you say but collaboration between the ruling political parties aims at preserving the current political economy, which is dominated by the rentier class and sectarian interests. Its final aim is to maintain what I would call an Ancien economic model and the Taef political system with all its political, economic, and administrative distributional channels. We cannot and we should not expect these parties to agree on a "reform agenda". Such an agenda would shake the foundations of the regime. That is why nothing has changed in the past twenty-five years or so despite all the promises of reform.

If by reforms we mean some cosmetic changes or anti-labor and anti-social welfare measures, there could be some in the regime who are receptive to such ideas as such measures would serve their class interests. Having said that, I highly doubt they can go ahead with them. I think they would fear the rise of an opposition movement more radicalized than what we saw during the 2015 civil demonstrations. In addition, many sectarian groups rely on the support of their "masses" and for them, the state is a channel of redistribution toward what they consider their "clientele". In short, Lebanon has regressed into a quasi-feudal political system married to the most reactionary form of capital represented by a financial aristocracy. Such a system cannot be reformed, it has to be dismantled.

To what extent would a crisis affect social groups and communities differently?

The current crisis primarily affects the young, working, and middle classes in addition to those sections of the capitalist class that benefit from progress and real entrepreneurship instead of the current stagnant system. Of course, the classes that benefit from the current state of affairs fear that the whole system will collapse and some are coming to the realization that things cannot continue stagnating indefinitely. Hence, they are trying to salvage this decaying old model by hoping that foreign aid will do it or via a shift in the economic realities of the region or reconstruction in Syria. This is at most wishful thinking. They may save the model but not the economy.

What are your top three policy recommendations for a new government?

I am not in the business of giving recommendations to the new government. This is totally futile. What we need is a radical change. We have to decide whether we want to keep doing what we are doing and have been doing for the past twenty-five years or whether we want to chart a new course. If the latter, we have to take all necessary measures to build a productive economy, a modern secular political system, and a fairer society. If you want more concrete policies, for starters, we need a new tax system that transfers resources from the rentier economy toward the productive economy, i.e. an “exploitation” of one unproductive sector to build a more modern and productive one. This is the only way to do it. The current “capitalist class” has failed miserably at developing a modern economy. The wager of this generation is to present a new alternative, not policy options or recommendations. We are beyond that. As United States Senator Bernie Sanders said, we need no less than "a political revolution". Here, I think the political left—secular and civil society groups—and the remaining advanced sections of the business and industrial community should come together and present such an alternative.

What would be the role of international actors—both states and international organization—in mitigating the crisis, and under which conditions?

I do not believe that international actors should play the role they have been playing for the past twenty years or so of propping up an economy or political system that remains in a permanent state of crisis. From the early deposits with the central bank in the 1990s to Paris II and III, international actors were de facto bailing out Lebanon. However, nothing has changed—they just bought more time. Fine, a financial crisis did not explode in 2002 because of Paris II and that was a good thing. However, policy should not be solely focused on "crisis prevention" but rather on building a sustainable modern economy. If international actors can provide part of the necessary capital to do that, so be it, but only after we provide such capital ourselves through a radical restructuring of our tax structure. We need no less than an administered "euthanasia of the rentier" to borrow from John Maynard Keynes.