With tensions between Lebanon and GCC countries rising everyday, it is essential to examine how Lebanon’s economy has become dependent on oil-producing states and the man who helped make it happen. Paul Cochrane reviews the latest biography on arguably the most powerful Prime Minister Lebanon has ever seen.
By Paul Cochrane
Academic Hannes Baumann notes early on in Citizen Hariri: Lebanon’s Neoliberal Reconstruction (Hurst, 2017), that “Rafik Hariri became even more politicized in death than in life”. This is especially true when it comes to powerful political figures with sizable organizations behind them that want to capitalize on assassination.
Posters of Hariri, like so many other slain Lebanese politicians still adorn billboards 12 years later, while for years outside the Mustaqbal TV building in Kantari there has been a billboard demanding al haqiqa (the truth, about his assassination) with an electronic ticker beneath showing the number of days since Hariri was killed in a macabre blast outside the St. George’s Hotel on Beirut’s Corniche.
The son of a Saida fruit-picker, Rafiq Hariri in some sense bucked the historical trend, having been neither a militia leader nor one of the established zu’ama. While a ‘self-made man’, Hariri was nonetheless politically assisted to be twice prime minister and a driving force in the country’s post Civil War political-economy landscape.
Like F. Scott Fitzgerald’s The Great Gatsby, who inherited tremendous wealth from a benefactor, Hariri benefited from the largess of the Saudi royal family, initially with construction deals and later as an interlocutor for the House of Saud in Lebanon during the civil war.
Hariri emerged, like Najib Mikati and others, onto the Lebanese political scene as the result of petro-dollar contracting fortunes initially made in the Gulf, crucial to understanding Lebanon’s post civil war environment. This is why Baumann, a German academic currently teaching at Liverpool University, opted to use an individual biography – Hariri’s – to explain social, political and economic change in Lebanon.
While there was little inkling in the 1980s that Hariri would rise to such political prominence, he certainly had business interests in the ‘old country’. In 1983, Hariri took control of top positions of Banque Mediterranee (BankMed, now 100% owned by the Hariri family), and in the same year drew up plans to reconstruct downtown Beirut. As Baumann put it, “it is hardly surprising that a contractor such as Hariri would regard a real estate project [Solidere] as his country’s salvation”.
Preliminary work began that year via Hariri-owned Oger painting the facades of buildings in the Mara’ad area and building a prototype block of houses in Suq Tawil, while the army, backed by the Lebanese Forces, fought an eight hour battle to evict the war-displaced squatters from Wadi Abu Jamil. Such moves reflected Hariri’s ability to wheel-and-deal to get projects off the ground, working with President Amin Gemayel to develop downtown, the littoral north of Beirut (around Dbayeh), and the southern suburbs.
Yet while Hariri had Gemayel’s backing (but not political support, at least to be appointed prime minister as the Saudis wanted) it did not allow him to develop the southern Beirut shoreline into high-end tourism and luxury residences: “The predominantly Shia inhabitants of the area interpreted the resettlement plans by the Maronite president and the Sunni contractor as an attack on their community,” writes Baumann.
Baumann’s text, emphasized in the subtitle Lebanon’s Neoliberal Reconstruction, is particularly adept at explaining how Hariri brought the global economic zeitgeist of the post-cold war era – neoliberalism – to the country and gave it a local twist.
As Baumann observes, “Hariri and his technocrats were importing global templates of neoliberal urbanism, currency management and privatization, but regional and domestic factors were setting the limits of Lebanese neoliberalism.”
Neoliberalism is one of those sticky terms that is hard to exactly define, as Baumann explains. He defines it as both an economic orthodoxy and a class project that restructures the state, emphasizing these inherent contradictions of “illiberal and monopolistic practices with free-market rhetoric.”
Privatization for example is a top goal of neoliberal doctrine, but Lebanon’s clientelist structure prevented the selling-off of state utilities and assets, as politicians wanted to keep hold of ministries and, importantly, retain jobs for their constituencies.
“Hariri’s policies concentrated wealth, resulting in high unemployment and continued poverty, while most Lebanese remained dependent on politicians for the provision of jobs, education or health care. This was the economic basis of clientalism. Inequality and a lack of public services were a direct result of Rafiq Hariri’s neoliberal economic policies.Neoliberalism thus reproduces the political economy of sectarianism,” writes Baumann.
When it comes to Solidere, the company created in 1994 to reconstruct downtown, Hariri used the neoliberal logic of the state playing a major role in extracting value from the city at the expense of the populace. This included signing over the land reclaimed from the Normandy landfill to Solidere, tax breaks for 10 years and not properly compensating many of downtown’s original property owners (a point still made in big letters on the side of the St. George’s Hotel: ‘Stop Solidere’).
As Baumman observes, “the mechanism by which property was expropriated illustrates one of the contradictions between neoliberal orthodoxy and practice: while one of the main functions of the liberal state is to defend property rights, Solidere represented an enforced, rather than a voluntary, transfer of such rights. The interventionist neoliberal state enables new forms of accumulation by dispossession.” Hariri’s real estate obsession as a core economic driver has also had long lasting negative ramifications: a building bonanza that has squeezed the less well-off out of the capital, cemented over archaeological sites, and privatized the few remaining public spaces, including beaches.
Hariri’s plan for economic reconstruction being based on physical infrastructure was a “fallacy”, writes Baumann, as instead the Lebanese economy was absorbed into the rentier system of the Gulf oil states and as an outlet for Gulf capital (by rentier he means an economy which derives all or much of its income from resources, such as hydrocarbons, while another definition is an economy deriving income from property or securities – so not industry or manufacturing). Without the Gulf and its petrodollars, argues Baumann, Lebanon would be on a slippery downward economic slope.
Indeed, Solidere gives an indication at the micro level of how the whole country could be in economic dire straits if the Gulf connection sours. For several years downtown (Beirut Souks excepted) has been a ghost town with restaurants shuttered, and stores having moved out due to the drop in Gulf tourism. As of August 2017, 18.7 percent, or 250, of all residential apartments in downtown have not be sold, worth $750 million (the average value per apartment is $3.1 million), according to RAMCO figures.
The current malaise in much of downtown is indicative of one the problems of utilizing a neoliberal urban model in a not very stable part of the world: the Arab-Israeli conflict and its ramifications for Lebanon; Syria; and regional and global powers’ involvement in Lebanon and the wider Middle East.
Baumann links Hariri’s Solidere plans to his technocrats, supposedly apolitical globalization experts that were above Lebanon’s political sectarian fray, who developed Solidere and then joined his government. “They spoke the language of neoliberalism as an economic orthodoxy. They had allied themselves with the Gulf capitalist Rafiq Hariri, who was using neoliberalism to assert the power of this faction of capital in the Lebanese economy”, colonizing “state institutions and repurposing them to serve their goals”.
But these ‘apolitical technocrats’ got caught up in sectarian politics, not just by virtue of being connected to Hariri, while Hariri himself had to increasingly play the sectarian card in his own politics, especially from 1998 onwards among his Sunni constituency to get his party elected.
Hariri began “to pose as the main defender of his community’s political interest, and his philanthropy allowed him to claim Sunni leadership in Beirut by neutralising the Maqasid association – thus political damaging Tammam Salam – and expanding Hariri Foundation health centres”.
It was a strategy however that did not always work. As Baumann observes, in 2004, Hariri was far from popular among his Sunni constituency, including in his hometown of Saida – “a list backed by Nasserite MP Musata Sa’d won all 21 seats on the council, defeating Hariri’s list”. In Beirut, the Unity List won all 24 seats, “but a low turnout of only 23 percent undermined the image of victory”.
As Baumann observes, politicians were willing to play along with neoliberalism when it suited them, but not when it would challenge their power base.
Banks, Debt and High Interest
It was Hariri’s meddling with fiscal policy however that had major ramifications for the country, which continue to hang like a Damocles Sword over all Lebanese heads. Hariri made the decision to peg the Lira to the US greenback and seriously ramp up debt to fund reconstruction.
This led to a ‘merry go-round’ of government borrowing at high interest rates and Lebanese commercial banks overwhelming financing that debt. On the one hand this has caused Lebanon to have one of the highest debt to GDP ratios in the world, while secondly has enriched the elite and the banks. As AUB’s Jad Chaaban has noted, some 5 percent of the population control over 70 percent of the wealth in the banks.
Equally devastating for the economy, and where Hariri’s neoliberal agenda differed from elsewhere, was that high interest rates discouraged the banks and the wealthy from investing in new businesses or the Beirut Stock Exchange (which has just 15 listed companies, including Solidere). Indeed, why would you, when you could get around 15 percent during the early Hariri years, and today, 6 percent or more on the Lira.
As Freddie Baz, chief financial officer at Bank Audi, said in 2010, “Today it is a rentier economy; if I can still get 6 to 8 percent interest, why should I understand (invest in) the stock market?”
Billions of dollars in profits have been made from the debt, and in typically neoliberal outcome, little has been given back, while banks are strongly linked to politicians.
As Baumman notes, “lending to the Lebanese government remains the backbone of the banks’ business. In October 2015, claims on the public sector accounted for 20.6 percent of total assets of Lebanese commercial banks, while 38.1 percent were deposited with the central bank.”
A vessel for Gulf investment
Baumann ends his book on a negative note on the country’s contemporary situation. He argues, as have others, that Lebanon could very well be banking on magic, given the high debt-to-GDP ratio, the weak economy, minimal foreign direct investment, and the lack of a comprehensive economic policy.
Furthermore, the local economy is overly dependent on Gulf petrodollars, be it in terms of remittances from Lebanese working in the Gulf (two-thirds of all remittances), to Gulf investment, capital and tourism. The latter has largely dried up due to the Syria conflict, and the Gulf’s economic fortunes are looking less rosy than they have been in decades, due to low oil prices and economic diversification moving at a snail’s pace.
“Lebanon has become a vessel for Gulf investment, and is now almost completely dependent on the oil monarchies. Rafiq Hariri was the chief architect of this dependence…Lebanon is tied to cycles of boom and bust in the Gulf,” writes Baumann.
The Gulf states have left it too late to wean themselves off oil, and Lebanon has left it too late to wean itself off the Gulf. As Baumann acerbically concludes, “Lebanon still has little to offer beyond mountains, beaches, a pleasant climate and clever bankers. Rafiq Hariri took no steps to transform the Lebanese economy to a more sustainable model. His political rivals – mainly former militia leaders – have no workable model of economic development beyond predatory rent-seeking through state largess.”
While Hariri’s political-economic legacy negatively impacted the majority of Lebanese and has saddled the public with a gargantuan debt, even his actual death has cost the Lebanese a pretty penny. The Special Tribunal For Lebanon (STL), set up to investigate his assassination, has already cost north of $325 million, with 51% coming from UN member states, the remaining 49% from Lebanon.
Paul Cochrane is an independent journalist based in Beirut, covering the Middle East and Central Asia. His work has been featured in over 80 publications, including Reuters, Money Laundering Bulletin, Middle East Eye, Petroleum Review and Jane’s. You can find his work at www.backinbeirut.blogspot.com