Lebanon's long game

Rumblings of Revolution

Clouds of dark black smoke billow from a pile of tires engulfed in flames. The sound of car horns is drowned out by hundreds of people echoing a chant of “bring down the regime” and “everyone means everyone.”

On October 17, 2019, hundreds of people flooded the streets of major cities in Lebanon, blocking traffic and protesting their government. The demonstrators demanded the immediate resignation of all elected officials, including the president, prime minister, and parliament—all of whom they deemed to be corrupt.

Corruption accusations are nothing new to Lebanon. This time, however, was different—the Lebanese people had united across sectarian lines in opposition to a government out of touch with the needs of its people.

“They realized that, despite their differences, they can influence a new government that serves their needs,” says Kristelle Mardini, director of the Lebanese Institute for Market Studies (LIMS). Outraged by a proposal of new taxes and an increase in existing VAT rates, young Lebanese orchestrated what has come to be proverbially known as the ‘uprising of dignity.’

A Country in Turmoil

Throughout its history, Lebanon has demonstrated a tradition of economic freedom, characterized by its reputation as a trader nation. The Phoenicians were well known for their entrepreneurial abilities, constructing prosperous shipping ports in present-day Beirut and Tripoli. In the 1960s, Lebanon was even referred to as the “Switzerland of the Middle East,” due to its financial prowess and cultural diversity. On the outskirts of Tripoli, Lebanon stands the Rachi Karami International Fair Ground, designed by Oscar Niemeyer, the esteemed Brazilian architect best known for his design of Brazil’s capital city, Brasilia. Construction of the Tripoli International Fair began in 1963, riding the country’s economic boom as a means of attracting future tourism, foreign investment, and transnational exchange. Unfortunately, these aspirations would be short-lived.

From 1975 to 1990, a multidimensional civil war ravaged Lebanon, costing the lives of over 120,000 and displacing many more. At the conclusion of hostilities, neighboring Syrian forces occupied Lebanon until the assassination of Prime Minister Rafik Hariri and subsequent Cedar Revolution in 2005. Throughout the civil war, the fairgrounds were occupied by Syrian forces, who used it as a base and an artillery launch site. Today, the Tripoli International Fair is in a state of decay, a constant reminder of the aspirations of a bygone era undone by government waste and identity politics.

Lebanon continues to show scars of its tumultuous recent history. The country’s major political parties fall exclusively along sectarian alliances forged during the period, establishing an unhealthy environment for identity politics that policymakers have long exploited to pit neighbor against neighbor to achieve their political ends.

Since becoming independent, Lebanon has been plagued by government corruption and waste, which has contributed significantly to the country’s high unemployment, inflation, shortage of dollars, and scarcity of imported products. For years, rival sectarian groups have pointed fingers at one another for the country’s economic downturn, a response that today’s protesters have largely rejected. “I think the most important part of our revolution is the accountability,” says Ms. Mardini. “People are not willing to fund the government’s expenses anymore. The people realized that their government is unable to deliver any decent services and they are now demanding a change of system.”

Two weeks after the peaceful protests first began, violent sectarian groups attacked defenseless protestors in Beirut, setting fire to their tents. Unrelatedly, Prime Minister Saad Hariri announced his resignation the same day. Protestors considered the resignation of Hariri a major victory, yet continued using roadblocks as a tool to force sitting political leaders to resign. They sang patriotic songs and proudly waved the Lebanese flag, which features an iconic cedar tree, a symbol of national pride for Lebanese everywhere.

Rody Frangieh, an intern at LIMS, said “Lebanese people re-felt love and attachment for their country, in which they’d suffered under harsh economic and political conditions for so many years.” This newfound love quickly took the form of dance parties on Tripoli’s Sahet al-Nour (light plaza) and yoga sessions in the middle of Beirut’s Ring Bridge in hopes of forcing the appointment of a technocratic government, independent of all political parties and sectarian alliances. Several protesters even blocked a highway with kitchen appliances and pieces of living room furniture, declaring “Lebanon is my home.”

Economic Freefall

For year’s Lebanon has punched above its weight in one category—a skyrocketing national debt. Today, Lebanon’s public debt hovers at US$85 billion, which is approximately 1.5 times the country’s GDP. In 2019 alone, Lebanon incurred an estimated US$18 billion in expenses compared to US$11 billion in revenue. Despite massive amounts of public spending, Lebanon’s government is unable to provide basic goods to its people, including reliable electricity, clean water, decent roads, and consistent internet access.

Once a proud and wealthy trading nation, Lebanon is extremely poor today. In a country of just over six million people, nearly two million live in poverty,[MM1] including over 250,000 that live in extreme poverty. Included in these totals are approximately two million refugees from nearby Syria, Palestine, and Iraq. Unsurprisingly, these refugees have become scapegoats for much of the country’s recent economic struggles, notably the country’s high unemployment rate (~7 percent). Many Lebanese with the means and connections to emigrate leave, establishing vibrant communities in their adopted homes. Entrepreneurs, unable to reach their full potential back in Lebanon, succeed with regularity abroad. Today, there are more Lebanese living outside of the country (~7-8 million) than within it. Estimates put remittances from the Lebanese diaspora at approximately US$9 billion annually, or 18 percent of the country’s total economy.

For years, the Lebanese Institute for Market Studies (LIMS) has closely monitored the country’s debt crisis and prescribed solutions to save the future of the country. Led by Dr. Patrick Mardini, LIMS urged the government to eliminate needless debt-generating expenditures through privatization, which they argued would lead to increased competition, innovation, and revenue generation in the marketplace. Specifically, Dr. Mardini suggested an end to renting expensive power ships from Turkey and halting the construction of new dams, instead allowing the private sector to finance and operate these projects, thus shifting the cost from government to businesses.

LIMS’ efforts paid off. As a result of their campaign, the Lebanese government approved a plan to open the electricity sector to private competition, resulting in an aggregate of US$5.4 billion—or US$125 per taxpayer per month—in savings.

Until recently, the Lebanese government had staved off economic collapse through appeals to the International Monetary Fund (IMF) and other foreign lenders to cover the needs of the Treasury and to roll over existing bonds. However, in 2019 interest rates on the country’s loans rose to more than 10 percent, and it quickly became clear that the Lebanese government would be unable to pay back its debts.

In response to the impending economic collapse, the Lebanese government rolled out an austerity plan designed to boost revenue through taxation rather than by reducing wasteful spending. One of the proposals was a $6 per month tax on the use of WhatsApp for WiFi voice calling. This was an unpopular choice: the government’s monopoly on telecommunications services in Lebanon means that cellular coverage is both expensive and unreliable, making WhatsApp a preferred source of communication among young Lebanese. Meanwhile, the Lebanese government continued to finance large-scale projects, including the construction of water dams, the renting of electrical power ships, and the maintenance of the country’s telecommunications sector. To make matters worse, the Lebanese government proposed a new tax on banks, which rapidly eroded their customers’ trust in the financial sector. To counter an impending cash shortage, banks were forced to institute capital control on depositors.

Shifting the Narrative

The question was never if economic, financial, and monetary collapse will occur, but when. This heightens the importance of decisions being made now, which will have huge ramifications for the future of Lebanon. “Any upcoming cabinet will need to start a series of economic reforms,” says Dr. Mardini, who believes Lebanon can learn from the experiences of Chile, the United Kingdom, and Ireland during their economic recoveries in the 1970s and 1980s. Crucial to each of these success stories was a commitment to curtail wasteful spending contributing to national debt and allowing the private sector to manage industry. If implemented correctly, Dr. Mardini believes Lebanon can “recover the lost glory and prosperity of the 50s and 60s.”

However, a socialist reform agenda has struck a chord with a significant number of the protesters. Based on the incorrect assumption that recovering stolen money from corrupt political leaders will solve the country’s ailments, many young Lebanese continue to hold unrealistic expectations for the future of their country. Rooted in good intentions—providing free education, employment opportunities, and healthcare for all—these proposed expenditures have historically been proven to be inefficient at best and counterproductive at worst.

Even the few remaining billions that were transferred to Lebanese political leaders and their inner circles cannot be regained easily. Large chunks have already been wastefully spent and what remains is masked by an opaque network of lawyers, accountants, offshore accounts, and tax havens. “Populist promises of free goods and services that the Lebanese economy cannot afford is exactly what got Lebanon into the current economic disaster at the first place” says Dr. Mardini, “and will inevitably lead to scenarios like Argentina and Venezuela.”

In order to be heard in the battle of ideas, LIMS has taken to the streets—and they intend to win. “I feel that some Lebanese are giving up now,” says Ms. Mardini, “but for the first time in Lebanon, we have a window for radical change.”

A Party in the Streets

Music blares from car speakers; balloon vendors make their way through the crowd; the smell of cumin-covered corn fills the air. Young people lock arms as they sway back and forth next to a blazing bonfire. The scene very well could be that of a fairground. Instead, it’s a protest.

Volunteers cook and hand wrap pita sandwiches and distribute them among the protesters. Local lawyers meet for a rudimentary roundtable discussion. Nearby, a tent dubbed “The Revolutionary Library,” provides donated books to interested readers on topics ranging from political philosophy to self-help. A sign above the bookshelves reads “Danger: Free Thought” in Arabic. Included among the stacks are several copies of “Poverty & Freedom,” edited by Atlas Network’s Matt Warner, and “Why Liberty” and “Self-Control or State Control,” both edited by Atlas Network’s Tom Palmer.

In November 2019, LIMS hosted representatives from Atlas Network and the Fraser Institute at a series of events in Tripoli that focused on the findings of the most recent Economic Freedom of the World report. Despite challenging realities on the ground, including roadblocks and power outages, LIMS successfully implemented an unconventional, yet dynamic approach to the prototypical audit process.

LIMS opted to engage protesters in al-Nour Square, Tripoli’s primary meeting place and the location of some of the country’s largest and most active protests. The public event featured the Fraser Institute’s Fred McMahon and Michael Walker, who provided presentations on the importance of economic freedom in Lebanon and answered questions posed by the protesters. Lebanese from all walks of life attended the event, posing crucial questions about the future of their country. The event was a success, attracting over a hundred participants in person, with many others contributing questions live via social media. While not all attendees were convinced of the merits of free-market reforms, their presence alone spoke volumes about LIMS’s ability to engage the public in meaningful discussion. According to Fred McMahon, “LIMS understands that for free market reforms to develop and, most importantly, be durable, informing the public is essential. Their efforts, and success, in doing this and generating the detailed policy proposals that Lebanon needs are astonishing.”

The Path Forward—A Blueprint for Lebanese Prosperity

Leveraging their findings and years of experience, the LIMS team produced a roadmap of tested reforms able to extricate Lebanon from the expected collapse, aptly titled BELIEF-Blueprint to Elevate Lebanon’s Infrastructure, Economy, and Finance. The purpose of BELIEF is to fill the current gap and move the discussion from empty promises and populist rhetoric to specific reform policies. The blueprint for reform includes a series of propositions that would cut public spending, dismantle monopolies, and ensure checks and balances on all remaining public expenditures. In addition to promoting the blueprint across political parties and decision makers, LIMS decided to continue engaging protesters through social media content such as videos, photos, charts, posts, infographics, and traditional media interviews with television, radio, newspaper, and online news outlets.

LIMS is also exploring the idea of opening their Leaders’ Academy, a capacity-building program for young activists, to the leading grassroots groups engaged in the current protests. A greater understanding of market-oriented policies can provide these young leaders with the ability to address economic challenges that are of immediate concern. The LIMS Leaders’ Academy, along with BELIEF, seeks to unite a diversity of opinions around on a common project and allow leaders to find common ground. LIMS hopes to find ways to engage protestors without losing rapport that the organization has worked years to establish with different political parties.

LIMS faces an uphill battle. Lebanon is in the midst of economic collapse; recent political appointees appear to be a continuation of the status quo; and escalating tensions between the United States and Iran has provided ammunition for Hezbollah, Lebanon’s Iranian-backed militant group and political party, to reenergize its base in the south of the country. “I am worried that a civil war may arise from what is happening,” says Majdi Aref, senior policy analyst at LIMS. “People are still horrified from the past civil war. This means that people might be willing to give away their freedoms in exchange for peace.” The immediate future for Lebanon may look bleak, but now is the time to lay the groundwork for long-term prosperity and freedom.

LIMS’s fight for freedom is our fight for freedom.

The Lebanese Institute for Market Studies won Atlas Network's 2019 M.E.N.A Liberty Award for their work advocating a freer Lebanon. Kristelle Mardini and Dr. Patrick Mardini are graduates of the Atlas Leadership Academy, and LIMS has been an active participant in Atlas Network’s conferences and grant opportunities. As a result, the entire LIMS team has worked to hone their approach, developing strategies to increase the effectiveness of their work and, in 2019, the organization was named as a finalist for the Templeton Freedom Award.