Date: Dec 11, 2019 Source: The Daily Star Economic woes of Lebanon: The root causes Dr. Karim Rebeiz We all heard it and it is true. Lebanon is on the brink of a massive tragedy. The risk of a cascading devaluation of the Lebanese pound is looming on the horizon with a serious risk of hyperinflation. The wages are decreasing in real terms. The interest rates are at an all-time high. The employment rate is continuing its upward trend. The real growth is stagnant if not crawling downward. The consequences are a further impoverishment of the population, an aggravated and acute social problem and, in the worst possible scenario, an impending civil war. Many pundits are scrambling to find some sort of solutions, as the country is further edging closer in the direction of a total economic and social collapse. Some suggestions include a decrease in the fiscal deficit, a replenishment of the foreign reserves of the Central Bank, a reduction of the electricity expenses that amount to $1.7 billion a year, even a restructuring of the debt, and, of course, the formation of a credible and trustworthy government with a so-called credible roadmap, capable of restoring confidence in the governance system. All the aforementioned initiatives are certainly steps in the right direction. However, they are nothing more than a Band-Aid, a temporarily medicine that postpones the inevitable. They certainly do not represent a panacea for the economic woes of Lebanon. The sine-qua-non condition for managing this growing crisis is to tackle the root causes of the economic woes of Lebanon, and not just the symptoms. The first root cause of the problem is the over-emphasis of the public sector and the under-emphasis of the private sector which is the main driving engine of a healthy and productive economy. Let’s face it. Lebanon is the ultimate welfare state. This situation perpetuates the fiscal deficit and the ballooning debt and, in the process, superbly ignores the needs of the private sector. A large government is bureaucratic, inefficient and more prone to corruption. If I may indulge in a metaphor, an obese body generates high blood pressure which, ultimately, would yield to a heart attack. Translating into economic terms, an obese body is an over-sized government, and a high blood pressure is high interest rates, high inflations, and high unemployment rates. Lebanon needs to go on a diet and restructure its public administrative institutions. The perpetuation of the big welfare state is not sustainable in the long run. The second root cause of the problem is a malicious disease called corruption, a main trigger of the social unrest in Lebanon. The fight against corruption spans beyond the mere enactment of laws. It requires the restructuring of the judicial system, notably the appointment of independent judges with the 3 C’s characteristics, namely Competence (the ability to understand the dossiers), Character (the ability to uphold the highest standards of honesty and integrity) and finally Capability (the ability to take courageous decisions despite the many political pressures). Otherwise, the call to eradicate corruption would remain a sheer exercise of public relation. The third root cause of Lebanon’s problem is the most pernicious one. It is a foreign bacterium implanted by foreign powers to control the destiny of our beloved country. The bacterium strips the government of Lebanon from its legitimacy. Indeed, the key strategic internal and external decisions are controlled from a distance at the detriment of the supreme interest of the country. This bacterium also increases the risk factors in all of its dimensions, including the economic, the political and the social risk factors. The bacterium also heightens the prospects of internal and external war as it unscrupulously places the country on top of a barrel of dynamites ready to explode at any moment. In a nutshell, the bacterium creates a negative country climate that expels the rare and valuable resources (capital and humans) outside the country with all what it entails in terms of economic and social loss. Lebanon urgently needs an antibiotic to immunize itself and neutralize the adverse effects of the external interference bacterium before it is too late. In a nutshell, Lebanon does not need a Band-Aid. It needs a major surgical operation coupled with a hefty dose of antibiotics to address the root cause of the economic problems. The surgery is complex and the recovery is long and agonizing. Nonetheless, it is the only remedy to tackle Lebanon’s core socio-economic problems. In the meantime, we ought to remain patient, optimistic and perseverant. Otherwise, we will lose this country forever. Dr. Karim Rebeiz is a professor and dean of the College of Business at Phoenicia University in Lebanon. He was a professor at the American University of Beirut in Lebanon as well as Lafayette College in Easton, PA, U.S. He has intensive consulting experience with prominent construction and engineering firms in the U.S., Europe and Japan. He has published more than 150 papers in reputable refereed academic journals and conference proceedings and he received numerous teaching and research awards. He currently serves as the associate editor of “Corporate Governance: The International Journal of Business in Society” since 2015. A version of this article appeared in the print edition of The Daily Star on December 10, 2019, on page 4.