Since October 17, 2019, Lebanon has been shaken by an unprecedented social movement, in parallel with the most severe financial crisis in its recent history. With massive demonstrations in major big cities, and even in rural eras usually considered as the bastion of traditional and confessional parties, the social mobilizations were striking by their magnitude, their decentralized organization and by the nature of their demands.
The protest movements were based everywhere on a common denunciation of all political leaders (and, as claimed by the protestors, “without any exception”, as summarized by the slogan Kollon-Ya’ni-Kollon, litteraly meaning “by all, we mean all of them”.
It is the political economy of the last 40 years that is thus disclaimed, as shown by the countless demonstrations at the headquarters of the Banque Du Liban, the Lebanese Central Bank whose governor is particularly targeted as the maestro of the country's economic collapse.
With Covid-19 restrictions and the multiplicator effects of the health crisis and the explosion of August 4, 2020 at the port of Beirut, the country is stuck in a deep social and political crisis. Indeed, the transmission mechanisms of the financial crisis to the real economy are translated in a vicious cycle of unemployment-recession, with an acceleration of waves of layoffs, wage cuts, and migration.
When analyzing the structural determinants of the economic crisis, on can see that the post-war reconstruction and growth was permanently suffering from recurrent deficits in major macroeconomic balances (twin and triple deficits). Long-term trends in the labor market show that fiscal and labor policies generated an atrophy of all productive sectors in the last 3 decades. Therefore, the current collapse of a financial model based on capturing savings from the rest of the world calls for a reconsideration of the post-war growth model.
Indeed, from the 1990s, the unsustainable levels of the public debt fueled an economy of public rent-seeking, with smaller shares of productive expenditures in the annual fiscal budgets. Similarly, the overstated dynamism of the private sector was mainly driven by high marginal import rates, with an overvaluation of the Lebanese pound which translates in loss of competitiveness of domestic products and services, and an increased dependence on foreign labor (migrants and refugees, relatively cheaper).
Therefore, the post-war growth exacerbated the eviction of productive investments, the crowding-out effects being particularly detrimental to the agricultural and industrial sectors (apart from the construction and real-estate sectors), resulting an under-capitalized and a labor-intensive production model - mostly unskilled or low-skilled imported foreign workers.