Lebanon, a multi-confessional state, is undergoing a deep socioeconomic change that could trigger a review of its constitutional arrangement. The tiny republic on the Mediterranean was born in 1920 as a liberal democracy with a market economy, where the Christians had the upper hand in politics and the economy. In 1975, Lebanon witnessed a major war that lasted for fifteen years, and a new political system emerged in 1989, dubbed the Ta’ef Accord. The new constitutional arrangement, also known as the “second republic,” transferred major powers to the Muslims. Under the new republic, illiberal policies were adopted in reconstruction, public finance, and monetary policy, coupled with unprecedented corruption at the highest levels. On 17 October 2019, the country exploded in a social revolution which could precipitate the death of the second republic or the demise of the country as another victim of predator neoliberalism.
On 17 October 2019, what started as a protest against the government’s attempt to raise a tax on the use of free telecommunications apps turned within hours into a wider movement about a series of grievances and a long list of abuses committed by the Lebanese ruling class. The protests emitted a grassroots’ appeal and, within forty-eight hours, hundreds of thousands of protestors went out onto the streets and public squares, demanding the fall of the government and the arrest of symbolic figures for corruption and nepotism.
The current crisis originates from the government of Rafiq Hariri, the former Prime Minister of Lebanon (1992–98, 2000–04), who represented the interests of global neoliberalism, even if he did not know it. His policies were left intact after his assassination in 2005, and his son, Saad, carried the torch and reached a similar cul-de-sac in October 2019 and had to resign.
A series of domestic and international factors explain why Lebanon has been living in the same crisis in the same conditions since the year 2000.
Rafiq Hariri: Neoliberalism’s New Kid on the Block
Dozens of pamphlets and books provide a glorified image of Hariri. There is even a ten-volume biography of him published in Beirut in 2005 (Al-Laham 2005). However, to several academics, his economic policies and urban reconstruction projects actually placed Lebanon on a destructive path. Numerous authors have engaged rather critically with Hariri’s legacy, questioning his responsibility in the piling up of Lebanon’s current public debt and its widening socioeconomic disparities (Corm 2001).1
Others have offered more laudatory assessments of his vision and statesmanship.2 Ward Vloeberghs asserts that “foes and friends alike agree that, for better or for worse, Hariri kick-started the postwar economy, gained unprecedented control over national politics and also masterminded the physical reconstruction of the country” (Vloeberghs 2016, 23). He also coins terms such as “Harirism” to present a critique. Hannes Baumann, on the other hand, writes, “The biography of Rafiq Hariri is my way of mapping the neoliberal offensive in Lebanon” (Baumann 2016, 10). He explains that Harirism is not a one-man show. Hariri did not act alone: he assembled a network of experts on finance, economics, engineering, urban planning, law, journalism, local politics, and with a variety of other skills. He also enjoyed strong regional and international support.
Hariri’s period in Lebanon provides a window into the transformation of capitalism, and, most especially, the emergence of Gulf capital’s dominant position in Lebanon. He was a representative of Arabian oil wealth. His profession as a contractor (muqawel) conditioned his “vision” of reconstructing Lebanon. He regarded urban megaprojects as the key to economic success. He used a real estate company, Solidére (la Société libanaise pour le développement et la reconstruction), as his vehicle for developing central Beirut, and he anchored the Lebanese currency to the US dollar. Both actions deepened the rentier economy and moved the country to disaster.
Hariri was one of several Gulf contractors who eclipsed Lebanon’s old trade and finance families. These new contractors became a powerful capitalist faction in Lebanon, but they had to deal with militia leaders who also had economic agendas of their own. He became the most powerful of these contractors in Lebanon, economically and politically, because he also enjoyed strong support from Saudi Arabia.
Hariri’s reconstruction agenda and series of rent-creation mechanisms, which he and his technocrats were responsible for, followed a neoliberal logic in the division of roles: Hariri sought to strengthen the agencies of economic management, while other Lebanese leaders bolstered the state’s welfare mechanism in order to plunder it for their own political ends. Hariri used the government’s Council for Development and Reconstruction (CDR) and the Bank of Lebanon, respectively, to realize his projects; at the same time, political elites and former militia leaders abused Lebanon’s welfare agencies as patronage resources to service their clientele.
Consequently, Lebanon failed to achieve social development. This could be explained by the nature of the political economy of Lebanon’s sectarianism. The combination of Hariri’s agenda with the political elite’s control of social programs resulted in continual poverty and unemployment. The majority of people remained dependent on resources controlled by the politicians. This was the economic basis of sectarian clientelism, where confessional leaders distribute resources to their own followers. Their practices are central to the reproduction of sectarian identity in Lebanon.
Hariri was part of a wider global trend. His policies served the interests of a new class of elites and he believed that by building “a world class infrastructure” in Beirut he could make Lebanon appealing to foreign investors. In addition, in order to attract investors, he anchored the Lebanese currency to the US dollar. However, the foreign investors he had in mind were not primarily Westerners, but Arabs from the Gulf and wealthy Lebanese expats. Eventually, Hariri only managed to turn Lebanon into an outlet for Gulf capital, especially from Saudi Arabia.
Compared with the American idiom of “walk the talk” (i.e., “prove what you say with actions”), Hariri’s style was “liberal talk, illiberal walk” (Baumann 2016, 4). He did indeed promise to return to liberalism: “our strategy is based on re-establishing and strengthening one of the fundamental pillars of the Lebanese economy, namely, the free, open, liberal and democratic nature of our system” (4). He argued that the civil war had closed Lebanon to the world, and he intended to open up the country again, believing that it would benefit from peace with Israel, which seemed to be at hand in the late 1990s. Here, Baumann asserts that whereas Lebanon had a laissez-faire economy before 1990, “Hariri’s free market rhetoric was in tune with the global neoliberal Zeitgeist. In the immediate post-Cold War era, economic wisdom seemed to have converged to a free-market Washington Consensus” (5).
As an economic orthodoxy and a political project, neoliberalism was contradictory. It used free-market rhetoric in order to justify illiberal and monopolistic practices, and Hariri was no exception to that rule. His rhetoric deeply masked his illiberal policies. He was in charge of rent-creating mechanisms, which conformed to a neoliberal logic: reconstruction and currency stability. He placed technocrats at the helm of institutions such as reconstruction agencies, the Central Bank, and the Finance Ministry, and thus he effectively controlled the state institutions in charge of the economic management in Lebanon.
Rival political elites, including former militia leaders Nabih Birri, Walid Junblat, and Elie Hobeiqa, appropriated rent by using Lebanon’s welfare agencies as patronage instruments. They put their men and women in charge of “service ministries,” such as health or social affairs.
The two pillars of Hariri’s program were the rebuilding of Beirut’s city center and currency stabilization, the former of which involved the transfer of property rights from its former owners to a single real estate company, Solidére. State interference in property rights on the scale Hariri applied was unprecedented in Lebanon. The property rights of Beirut’s commercial district were reassigned to Solidére, and instead of reconstruction, luxury real estate was developed on the site, resulting in land rent being appropriated by developers.
As for the currency, even in the darkest days of the civil war, the Central Bank had maintained a floating exchange rate. Under Hariri’s government, the Central Bank started pegging the value of Lebanon’s currency to the US dollar. This interference in the market resulted in severe macroeconomic instability and inconsiderable rents accruing to commercial banks and large depositors in Lebanon. Markets for consumer goods, services, and raw materials were either regulated very heavily or not regulated at all, and new monopolies created rents for a few dominant market players.
In the 1990s, the ruling elites, Hariri paramount among them, pushed to privatize state enterprises and seize control of the private sector in order to monopolize it for themselves, rather than opening the private sector up to the world and society at large. Hariri’s policies ushered in heavy state intervention that created investment opportunities for large corporations and state welfare as a patronage instrument, which led to a class struggle mediated by the Lebanese political elite. Hariri’s “liberal talk and illiberal walk,” and his embrace of supposedly private sector solutions, came under the aegis of an activist state.
Hariri never returned Lebanon to its liberal roots. In contrast to pre-war laissez-faire liberalism, Hariri’s neoliberalism actually strengthened the economic management of the Lebanese state. Harirism is thus defined as balancing Gulf capital as the driving force of Lebanese neoliberalism against the influence of rival Lebanese elites and Syria, all within the parameters set by Lebanon’s existing state institutions.
The Merchant Republic
Historically, the Lebanese state has been seen as weak and irrelevant, interesting only in the way it distributes power to the distinct sectarian groups that make up Lebanon’s population. Owing to its diversity, the state had been unable or unwilling to shape the economy or impose a unified national identity. With Hariri’s megaprojects and currency stabilization in the 1990s, this changed and heavy state intervention started.
Before 1975, Lebanon followed a laissez-faire economy, with liberal trade, a free-floating currency, and banking secrecy. Capital flowed into Lebanese banks from other Arab countries, and foreign direct investment went primarily into real estate in Beirut. Lebanon benefited from revolutionary changes in the Arab states during the 1950s and 1960s, and from Palestinian capital after 1948. Meanwhile, the rising oil monarchies of the Arabian Peninsula relied on Lebanese banks as conduits for recycling oil money (Gates 1998).
After several Arab states instituted liberalizing policies, and Arab oil states began to deal with world finance on their own, Lebanon’s comparative advantage in financial services evaporated (Baumann 2016, 18), with no compensation elsewhere in the economy. Not only did the state elites help to destroy the strong Lebanese banking sector in October 1966 (the Intra Crisis), but also the Lebanese laissez-faire system impeded structural change towards capitalist industrialization and caused agriculture to decline in relative importance.
Lebanese economist Toufic Gaspard confirms this unhealthy trend: “Despite Lebanon’s capital abundance, investment rates were low, and investment was concentrated in real estate, while manufacturing received relatively less money” (Gaspard 2004, 186). The “merchant republic” maintained a low-tax regime, and the state provided only basic public services in critical sectors such as health and education. In 1973–74, only forty percent of students were enrolled in government schools, and twenty-six percent went to schools run by charities. The rest attended private schools. Politicians manipulated education, health, and jobs as patronage resources. This situation deteriorated under the Hariri government.
The only shining moment of Lebanon’s recent history was the quiet revolution of President Fu’ad Shihab (1958–64). He helped to constrain the deep influence of the traditional elites, and to create social programs and public institutions, such as the Bank of Lebanon, the Civil Service Administration, social welfare, and the Ministry of Planning. He also undermined the clientelist networks of the traditional leaders. In short, his interventionist policies challenged the archaic liberal economic model of the minimalist state.
Although the traditionalists regained power in the presidential elections in 1970 and in the parliamentary elections in 1972, Shihabist technocrats continued to be a power in the Lebanese political system, and held several top positions in both government and the public administration. Chief among them were President Elias Sarkis and Prime Minister Salim al-Huss (also, in 1998, Finance Minister Georges Corm).3
Hariri’s arrival ended the political dominance of the already weakened traditionalists; he also reversed the Shihabist reforms and managed to destroy Shihab’s men. He did this by taking over the institutional innovations created by Shihab, and installing his men, and then using these institutions to implement his policies. The Bank of Lebanon and CDR were such institutions and major ones.4 Hariri only expanded state institutions in order to push through neoliberal policies, such as urban megaprojects and currency anchoring. Where he failed to sack employees in the civil service, under the pretention of downsizing, he created parallel structures with the help of the World Bank and the United Nations Development Programme (UNDP).
Lebanon has seen many people like Hariri in the past, who could not achieve high political office despite their wealth. Hariri was not a militia leader, nor was he from one of the political families that had dominated Lebanese politics before the civil war. His background was humble, but the fact that he ended up as the longest serving prime minister of the post-war era indicates something about the social and economic changes in Lebanon and the rising Saudi influence.
After ten years in Saudi Arabia, Hariri began to amass considerable wealth and traveled with a Saudi passport, which generated large benefits (Baumann 2016, 25–26). His political entry into Lebanon in the early 1980s was in the midst of Lebanon’s civil war, which began in 1975. By the time he settled permanently in Lebanon and became prime minister in 1992, he had already lived in Saudi Arabia for almost twenty-seven years.
Hariri’s involvement in Lebanese affairs started as early as 1977 when he donated funds to his former school in Sidon.5 He also founded a philanthropic association in Sidon called The Islamic Institute for Culture and Higher Education. In 1979, he started building a school complex in the village of Kfar Fallus near Sidon. This spending brought him in touch with Sidon’s local politics and notable families. He placed his technocrats in the municipal administration in Sidon and turned the Sunni mufti of Sidon into a client of his patronage. He was convinced that financial means were superior to other methods of winning influence, and would later repeat this pattern of patron–client engagement on a national scale.
Penetration of Lebanese Banking
In 1978, the Bank of Lebanon lifted a ten-year moratorium on new banking licenses, allowing a group of newcomers, who had grown rich as contractors in the Gulf, to extend their influence into the Lebanese economy. These newcomers started buying Lebanese banks and property, and investing in construction, while seeking a political role as well.
Hariri was one of the more prominent amongst these newcomers, but there were many others, such as Najib Miqati and his brother, Taha, who founded construction and telecommunication giants.6
Hariri started investing in the Lebanese economy in 1981 when he bought a seventy-three percent stake in the Mediterranée Investor Group (MIG), which owned Banque de la Mediterranée in France and Lebanon. When Joseph al-Khuri, MIG Chairman (a family relation of President Amine Gemayel), got into trouble by speculating on the silver market, Hariri provided the necessary capital to keep the bank afloat. In 1983, Hariri lost confidence in al-Khuri and appointed his long-term friend Fua’d Siniura as Chairman and General Director of Banque la Mediterranée in France and Lebanon. Hariri also opened the Saudi Lebanese Bank in 1982.
A prominent ally of Gemayel’s was Roger Tamraz, who was chairman of a state-holding enterprise, the Intra Investment Company (Intra). Tamraz spearheaded efforts to regain control of the Lebanese economy and to marginalize the interests of the Gulf states. While Intra was becoming part of the Christian Phalanges’ infrastructure, Tamraz sought to extend control over large parts of the economy, including the national air-carrier Middle East Airlines, which in turn drew the wrath of Gemayel’s opponents (Dib 2017).
In 1985, Hariri reportedly offered Gemayel US$500 million in Saudi aid on the condition that he would remove Tamraz from Intra and annul a decree that prohibited foreign investors from holding more than forty-nine percent of the funds in Lebanese banks. The said decree had been designed to curtail the influence of Gulf investors in Lebanese finance.
The Saudi Connection
In 1978, Hariri established the Saudi branch of the French construction engineering company Oger in order to manage projects in Saudi Arabia, and, in 1979, he bought the parent company of Oger and opened a branch in Beirut. He was uniquely positioned to succeed in Lebanon owing to the level of support he received from Saudi King Fahd. Although Syria and the United States maintained close relations with Lebanese businessmen, Saudi Arabia relied mainly on Hariri and other less prominent men to represent its interests in Lebanon (Baumann 2016, 27).
Hariri’s connections to the Saudi royal family granted him commercial advantages, but not yet political power. However, this changed in June 1982, when Hariri started a clean-up project in Sidon after Israel’s invasion of Lebanon. Hariri’s project involved removing war damage, reinstating public utilities, and providing emergency aid to refugees. Afterwards, he did the same in Beirut. These projects demonstrated to King Fahd that Hariri could be politically useful.
As a result of the clean-up project in Beirut, Hariri became the “Saudi mediator” in Lebanon. He won more lucrative contracts from Saudi Arabia as his diplomatic role in Lebanese politics continued to expand from 1983 onwards. Meanwhile, other Saudi representatives, including the Saudi ambassador, were sidelined. When Hariri entered the political stage, he replaced the Saudi ambassador as the principal conduit of Saudi patronage and money gifts.
Hariri’s expanded role began in 1983 when he served as a mediator in the militia war in the mountains, in coordination with Saudi Prince Bandar, who was mediating discussions between Washington and Damascus to stop that war. After that, Hariri participated in Lebanon’s national reconciliation conference in Geneva in October 1983, where he brokered arrangements and helped bring Lebanese delegates to Switzerland. Even Saudi support for Gemayel went hand in hand with Saudi investment in Lebanon, chiefly Hariri’s investments in Lebanese finance and construction.
As of February 1983, Hariri was already engaged in three major projects: the reconstruction project of Beirut’s city center, the northern suburbs littoral project (Linor), and the southern suburbs of the capital (Alissar). These projects depended on the Lebanese army’s control of the areas under construction and on the political support of Gemayel.
Beirut city center was the most important of Hariri’s three projects. The center used to be the heart of commerce, trade, government administration, culture, and transport. When Oger Liban began demolition works in the center, the army was required to evict dwellers forcibly. The northern littoral of Beirut began in conjunction with Gemayel and, in partnership with al-Khuri, who was close to Gemayel.
The third project involved the gentrification of the southern suburbs, replacing the poor rural migrants with luxury housing and high-value tourism close to the beaches. This required displacing Shi’a Muslim refugees, who were supporters of Nabih Birri, leader of the Amal movement. The Shi’a interpreted this plan as a ploy by the Maronite Christian president and the Sunni Muslim contractor to attack their community, and the project stopped.
Both Saudi Arabia and the United States supported Gemayel, who was opposed by Syria. When Syria’s allies defeated the Lebanese army in West Beirut in 1984, Hariri’s city center project was suspended. The subsequent birth of a government of national unity in 1984 brought militia leaders Nabih Birri (Shia) and Walid Junblat (Druze) into the cabinet. A new position in government, Ministry of State for the South, was specifically created for Birri. He also gained the right to countersign all payments made by the CDR. Thus began Birri’s access to public funds.
All along, Hariri supported the business interests and patronage vehicles of Junblat and Birri. He funded Junblat’s Sibline Cement Company and became a major shareholder in 1987. He also sponsored Birri with a loan of LL500 million (US$500,000 at a 1987 exchange rate) to the Council of the South, which was a patronage vehicle for Birri.
Hariri was quick to recognize the changes on the ground. He recognized Syria’s rising power in Lebanese affairs and he pushed for a shift in Saudi policy towards Syria, seeking favor from Damascus. He accepted Syrian predominance in Lebanon and supported the efforts of Damascus’ efforts to impose a settlement on the country’s warring parties. He not only met with major Lebanese militia and political leaders, but also established close relations with key Syrian leaders, such as Vice-President Abd al-Halim Khaddam, who was in charge of the “Lebanon file.” Hariri even moved his base of operations to Damascus.
Throughout that period, money was the primary means through which Hariri used to project political influence. In 1985, Khaddam was engineering an agreement to end the Lebanese war, and he had Birri and Junblat on board, but needed a major Christian militia leader as well. Hariri, who was involved in the agreement, brought Elie Hubaiqa, leader of the Lebanese Forces Christian militia, into the fold. Hariri then paid the three leaders large sums of money and they negotiated the agreement in Hariri’s home in Damascus. However, the agreement did not see the light of day because President Gemayel and Samir Geagea, the second most senior Christian militia leader, joined forces and defeated Hubaiqa in January 1986.
This created a stalemate during the last two years of Gemayel’s presidency, and the focus shifted from stopping the war to removing Gemayel to allow for the selection of the next president. Hariri reportedly offered Gemayel US$30 million to hand over power to Johnny ‘Abdu, a former Lebanese intelligence man and a close associate of Hariri’s.
In October 1989, Hariri was closely involved in a conference that assembled Lebanese parliamentarians in the city of Ta’if in Saudi Arabia. He arranged for deputies to be flown in and acted as a liaison between Damascus, Washington, and the gathered Lebanese parliamentary deputies. The conference culminated in the 1989 Ta’if accord, which was made possible by a US–Syrian rapprochement. Saudi Arabia helped broker the accord and also strengthened the position of the Sunni prime minister in the constitution, a position that Hariri and his men would occupy for the next thirty years.
By 1989, Hariri became a major power broker in the Lebanese political scene. He was a driving force behind the election of a new president to replace Gemayel. He flew the deputies in his private jet to northern Lebanon on 5 November 1989 and they elected René Mu’awad. When Mu’awad was assassinated on 22 November, another president was elected, thanks to Hariri’s swift arrangements. Hariri provided the new president, Elias Hrawi, with living quarters and offices in Beirut, and contributed to staff costs, accommodation, logistics, communications, armored cars, and security equipment.
The fact that the “Saudi man” in Lebanon was behind the election of two presidential candidates close to Syria underlined the Saudi-Syrian understanding over Lebanon. Syria also considered Hariri for the post of Lebanese prime minister.
Patronage and Clientelism
Long before the 1990s, some analysts demonstrated that the “militia economy was never outside larger processes of financial globalisation” (Hourani 2010, 291). There were inflows of militia funding and investment from the Gulf and the Lebanese diaspora. There were outflows of drugs, and Lebanon became one of the centers of the illicit arms market. The militia system was highly predatory, but after the Israeli invasion in 1982, it became unsustainable and there was a need for alternatives (Hourani 2010).
During the war, people came to rely on militia leaders to help them meet their basic needs, such as finding a place to live or a job. After the war, politicians sensed that because people had grown reliant on the militias to provide their basic necessities, the Lebanese were no longer as dependent on the political elite as they had been before the war. The elites, in turn, sought to keep the militias under control by convincing them that they could not get anything done without the help of the political elites. A large percentage of people continued to rely on resources controlled by the elites, and access to jobs, healthcare, and education were used as patronage instruments.
Henceforth, Hariri’s rivals used “service ministries,” such as the Ministry of Health (Frangieh), Electricity and Water (Elie Hubaiqa), Ministry of Education, Ministry of the Displaced (Junblat), and Council of the South (Birri), as patronage instruments. These institutions were used by militia leaders to provide benefits to their followers, such as jobs, loans, and grants, as well as to provide political access and intervention. Meanwhile, the Sunni public was watching how militia leaders dispensed their services to their client population.
Hariri as a Sectarian Boss
Hariri, the billionaire outsider, eventually behaved like a traditional Lebanese political patron. In 1998, he metamorphosed into Lebanon’s main Sunni politician and began a drive to win Sunni votes and become the undisputed leader of the community. He opened no fewer than six health centers in predominantly Sunni neighborhoods of Beirut through his foundation. Hariri realized that his economic clout and good relations with both the Saudis and the Syrians were not sufficient to realize his ambitions. He needed domestic political influence to compete with his Lebanese rivals. He was eventually able to win seats by playing the Sunni leadership card, in addition to being the major businessman in Lebanon (Baumann 2016). In the process, he diminished the importance of traditional Sunni city bosses.
Hariri’s main instrument to become a Sunni leader was a philanthropic arm called the Hariri Foundation. From the outset, its health centers were located primarily in regions primarily populated by Sunnis, and Hariri’s electoral strategy was based on courting Beirut’s Sunni community first and foremost. For many decades, the Salam family offered social services to the public through the Maqasid Society. However, Hariri Foundation’s provision of health, education, and social services to the Sunnis was on a large scale.
In addition, Hariri was often in charge of directly distributing King Fahd’s charitable donations to the Lebanese. Saudi financial help to his foundation was acknowledged at several points. Hariri also poached Maqasid for leaders and health and education specialists. As a result, even Tammam Salam lost his parliamentary seat in the 2000 elections and stepped down as Maqasid president. Tammam was allowed later to run as a candidate on Hariri’s list in the elections.
The Hariri Foundation also had a student loan program that, by 1996, benefited roughly 32,000 students. In the absence of effective state provision of education and health services, most Lebanese relied on charities for access to such services, and Lebanese politicians used philanthropy as patronage. It is still the case today that most charities in Lebanon run along confessional lines and philanthropy has a political economic effect of material exchange between patron and client and a cultural effect of reinforcing sectarian identity.
Running the Hariri Foundation was very expensive. It reportedly cost US$30–40 million annually to pay for 12,000 students, on average, and the salaries of 400 staffers. Students were primarily recruited with the help of Sunni Muslim religious and social organizations and staff at the Hariri Foundation, which was predominantly Sunni Muslim, and the majority of loan applications were not merit based. Non-Sunni student financing was awarded on the basis of political and sectarian connections (wasta). It was easier for Sunni candidates to obtain loans without political or sectarian connections. “On one occasion, a community leader imposed upon the foundation a list of 400 applicants after the application deadline” (Baumann 2016, 50). The foundation recruited mainly Sunni students because leaders from other communities perceived the foundation’s attempt to serve “their” communities as an infringement and a threat to their position. So as not to circumvent those leaders, Hariri allocated student loans to them and they, in turn, dispensed them to their supporters.
Currency Peg and Public Finance
Hariri’s influence extended from politics into monetary policy. Until 1983, the Central Bank’s governor, Michel al-Khuri, was an ally of Hariri’s. When al-Khuri returned to the post between 1991 and 1993, he became Hariri’s man to fix the exchange rate in Lebanon. The pegging led to severe macroeconomic imbalances, as the policy of currency pegging always implies rigidities that can be very dangerous, leading to the financial crises it generally intends to prevent.
After the war ended in 1990, the currency collapsed from LL1110 in January 1991 to LL2420 in September 1992 against the US dollar. A bout of speculation against the national currency occurred in 1992 and brought down Omar Karami’s government. This played a role in bringing Hariri to power as prime minister. As soon as Hariri became prime minister, the currency immediately recovered. Al-Khuri returned to the post of Central Bank governor from 1991 to 1993, and under his governorship Lebanon was put on the path of debt.
It took five years for the Hariri government to stabilize it. In 1997, the pound stood at LL1507 to the dollar, and since then it was pegged at this value. The peg did stabilize the currency, but it ushered in the explosion of government debt and a slowdown of economic growth through the “crowding out” of credit to the private sector. The currency anchor was a rent-creation mechanism that led to a transfer of wealth from the Lebanese state to banks and depositors. Since banks and depositors were extremely concentrated, wealth also became equally concentrated. Under the Hariri government, debt skyrocketed from around fifty-one percent of gross domestic product (GDP) in 1993 to 109 percent in 1998. Meanwhile, the enormous rents derived from government borrowing benefited only a small group of investors.
On the other hand, reflecting his expertise in construction, Hariri and his technocrats seemed to believe that the reconstruction of infrastructure would suffice to rejuvenate the economy and outgrow the debt. However, interest payments on government debt between 1995 and 2004 ended up being double what the projections had suggested. In addition, Lebanese banks did not become private sector investment intermediaries. Instead, they became intermediaries between depositors and the Lebanese government, which was offering high interest rates to bolster the Lebanese currency. Hariri placed his former employees at the head of the institutions in charge of reconstruction and his personal banker at the head of the Central Bank.
Another institution for controlling the mechanism of government borrowing was the Finance Ministry. In 1992, Hariri assumed the post himself, but installed his closest friend Fu’ad Siniora as Minister of State for Finance, who was effectively an acting Minister of Finance. Siniora was head of the Central Bank’s Banking Control Commission between 1977 and 1982, where he worked closely with Governor al-Khuri. Since 1983, Siniora played a central role in running Hariri’s business concerns.
In 1994, following the departure of Michel al-Khuri, Riad Salameh became governor of the Central Bank. He had previously managed Hariri’s personal finance portfolio at Merrill Lynch in Paris. Consequently, monetary and fiscal policies were coordinated in regular meetings among the trio: Hariri, Siniura, and Salameh, and the three reached a consensus on stabilizing the currency. Therefore, by 1994, Hariri had obtained control of both monetary and fiscal policy. The Central Bank and the Finance Ministry kept happy the class of very wealthy Lebanese who owned banks or were large depositors. This remains the case today after months of street demonstrations.
Hariri’s Reconstruction Project
The government’s CDR was Hariri’s institutional vehicle for controlling government spending on reconstruction. In 1991, parliament granted the CDR the power to establish and supervise real-estate companies, and Hariri’s employee, Fadl Shalaq, was appointed to head the CDR.7 With its new mandate, the CDR then established Solidére.
Solidére was Hariri’s main vehicle for the Beirut megaproject. It was set up by a board of founders, which included a large number of representatives of Saudi businesses. The board of directors was chaired by Nasir al-Shama, a Hariri employee, and included Bassil Yarid, a legal adviser to Hariri (he had been a board member of Hariri’s Banque Mediterranée since 1985). Sadly enough, parliament could not supervise the CDR’s work because its budget remained outside the government budget, so Solidére was only accountable to the CDR, at a time when both institutions were led by Hariri’s protégés.
Solidére started its work by transferring property rights in Beirut’s city center to itself: “accumulation by dispossession.” As original ownership rights were held by almost 150,000 tenants and landlords, Solidére issued stock shares and used them to pay these owners for a total value of US$1.17 billion. Another US$650 million was raised through a public issue in January 1994. Over ninety percent of original property owners accepted the shares option, while the rest received financial compensation that later proved to be considerably less than the real value of the property. Eventually, property rights passed from the old Beiruti middle class to the new contracting middle class, which angered some representatives of the old order. However, some of the old elites received better deals. Heiko Schmid reported that property owned by Maqasid and Christian establishments were lobbied by Bahij Tabbara, a legal adviser to Hariri and later a cabinet minister. They received a much better deal for their property (Schmid 2005, 16–20).
Former militia leaders also received better deals for their property. More than US$200 million was paid in compensation to displaced people living in the city center, an estimated 20,000 persons. They were mostly Shia, represented by Amal and Hezbollah. Berri strengthened his position as someone who could deliver benefits to his supporters. This played a role in the contract to build the coastal road from Beirut to the south in 1996, which benefited companies and people close to Berri, including his wife Randa Berri and Hariri’s brother Shafiq.
Solidére served as an inspiration for wider trends of gentrification and curtailing the public’s access to the city center. Similar to Solidére’s model that closed the downtown city center to the Lebanese of modest means, other projects elsewhere in the city transformed real estate into high-end luxury apartment blocks and brand-name shops, and kept the poor and the middle class out. Shopping areas on high-end Beirut’s Verdun Street were financed by the Shia diaspora and facilitated by Berri, and upmarket tower blocks proliferated across Beirut as mini-Solidéres.
In order to maximize profit, Solidére doubled the density of the city center and the floor space. This move necessitated the demolition of much of the area’s historic fabric and remodeled existing heritage structures. The fabric that was created over 200 years ago had created common space for all religious groups so that they could mingle socially, engage in commercial activities, and access affordable rental properties. The architecture of downtown Beirut reflected this fabric. The Solidére project got rid of this fabric, but kept a semblance of the older architectural structures as a fake Old Beirut. Schmid estimates that the original fabric was totally cleared from around eighty percent of the area later covered by Solidére. “In the end, far more buildings were demolished during the reconstruction than had been destroyed during the civil war” (Baumann 2016, 68).
Between 1992 and 1998, the Hariri government borrowed public funds on a road network that gives a clue as to whose needs Solidére was intended to serve. An eight-lane highway (“quasi wormholes from the airport to the downtown”; Baumann 2016, 61) rendered the poorer quarters invisible to the gaze of tourists or business people arriving in the city. Much of the investment in and demand for tourism services, retail, and luxury apartments comes from the Gulf or from the Lebanese diaspora (a wealthy portion of which derives its income from the Gulf).
Also, the government overpaid Solidére, considering that the land the company gained was worth much more than the infrastructure work it had signed to undertake. Solidére’s profit from the government contract was estimated at US$662 million. Charbel Nahas, an engineer at Oger who focused on public needs in the city center’s plans, fell out of favor with Hariri. His focus on public needs was seen by the Hariri network of Saudi and Lebanese businessmen as an obstruction to private profit maximization: they wanted high-end real estate. Later, Nahas would emerge as one of the most trenchant critics of Hariri’s policies (Edde 1999; Nahas 2003).
Parallel to the city-center megaproject, Hariri also conducted his significant political construction project, namely the Muhammad al-Amin Mosque in central Beirut, which was the jewel of the crown of the city center development. He “installed a congregated mosque in the middle of a sector reconstructed at his impetus—and often perceived as an exponent of capitalist power” on top of the ruins of the civil war. The edifice has become not only the new image of the Lebanese capital but also the main venue for the commemoration of Hariri after his death (Vloeberghs 2016, 17).
Lebanon in the Neoliberal Tunnel
Lebanon fell back into political crisis after the year 2000. The failure of the Hariri governments was accentuated by the explosive regional situation and by the domestic crisis in Lebanon which was dormant for several years after 1990.
When Syria stood against the US invasion of Iraq in 2003, it fell under increasing American pressure, and its fears led to more control over Lebanon. This regional development constrained both Hariri’s room to maneuver and his quarrels over economic policy with Syria’s Lebanese allies. Hariri was no longer seen as a selfless benefactor, so much as a self-serving entrepreneur. This sentiment was best expressed in a wildly popular book by Najah Wakim, a member of the Lebanese parliament, who made detailed allegations of corruption against Hariri and other members of Lebanon’s political elite (Wakim 2006).8
In 1998, Hariri opposed Èmile Lahoud’s election as president and decided to step down as prime minister. Lahoud replaced Hariri with Salim al-Huss, who headed a government of technocrats that started dismantling Hariri’s policies. Hariri’s protégés were replaced at the head of reconstruction agencies. Nabil al-Jisr, head of the CDR, faced corruption charges. Corm became Finance Minister and Yaqub Saraf replaced Hariri loyalist Nicolas Saba as Governor of Beirut. Meanwhile, Solidére, Hariri’s most important project, ground to a halt and recorded losses in 2000. As minister, Corm toned down government borrowing; he faced opposition from the Central Bank, still dominated by Hariri technocrat Riad Salameh, as well as from the Minister of Economy Nasir al-Sa‘idi, who was an ideological neoliberal at heart.
In the same year, Hariri’s connections in Damascus crumbled as Bashar al-Assad took charge of the “Lebanon file,” reducing the influence of Hariri’s allies, Abd al-Halim Khaddam and Chief of Staff, Hikmat Shihabi, who had been demoted. Hariri’s friend Ghazi Kanʿan, who had been chief of Syrian military intelligence in Lebanon and a de facto viceroy over the country, was recalled to Syria and replaced by Rustum Ghazala, an ally of President Lahoud.
When Hariri returned to the prime minister’s office in 2000, he resurrected rent-creation mechanisms he had originally created: reconstruction and debt management. He hired new technocrats, such as Bassil Fulayhan and Nadim al-Munla, Muhammad Shatah, and Jamal Itani (who eventually became CDR President).
Hariri pushed a privatization program, a regressive value added tax, and a plan to reduce government expenditures. However, when he tried to curtail expenses on “service ministries,” security and defense, he came face to face with Lahoud and Berri. He also waged battles over his privatization plans for telecommunications and for the national carrier Middle East Airlines. The most controversial privatization file was power utilities and electricity, which has remained the costliest line item in the government’s budget.
Between 2000 and 2004, unemployment and poverty were high and the benefits of growth in the 1990s had been distributed highly unequally, resulting in widespread discontent in Lebanese society. After all, Hariri was not a free marketer, but a neoliberal who instituted politicized oligopolies. His economic policy reproduced the poverty and inequality that forms the economic basis of sectarian clientelism in Lebanon. In addition, his sectarian turn was designed to bolster his parliamentary representation in order to push through his economic policies.
His understanding of the political shift in Damascus was translated into an implicit co-habitation with pro-Syrian forces in Lebanon, namely, President Lahoud and the resistance movement Hezbollah. This was the trigger of the economic blockade that the United States, its Western allies, and regional Arab friends in the Gulf imposed on tiny Lebanon. The co-habitation had to be demolished at any cost to the Lebanese people.
International finance organizations took the cue: no one would help the Hariri government as long as he remained in de facto alliance with Lahoud and Hezbollah. The International Monetary Fund (IMF) (2001) expressed dissatisfaction with Hariri’s policy. Hariri continued to believe that he was “liked” in both the West and the Gulf, and continued to frame his policies in terms of neoliberal “reforms,” even when the Lebanese economy was ossified. To avoid financial collapse, he called on Saudi and French allies to provide Lebanon with financial support in 2002. However, if anything, this influx of aid proved the extent to which Lebanon’s economy had become dependent on Saudi and Gulf money.
Hariri’s renewed neoliberal drive in 2000–04 saw his team of technocrats engaged in privatization of state-controlled enterprises, trade liberalization, debt management, and an intensification of the Solidére project.
Instead of taking the hint and dropping out of the political arrangement in Lebanon, Hariri sought to stay in power and weaken his opponents, Lahoud and Hezbollah. In 2004, he sought the help of his close friend, President of France Jacques Chirac, and requested that he “put pressure on Syria not to extend Lahoud’s mandate.” From that point on, things were out of Hariri’s hands. France and the United States went beyond Hariri’s wishes and sponsored United Nations Security Council Resolution 1559, which demanded the withdrawal of Syrian forces from Lebanon, the disarming of Hezbollah, and obstructing the re-election of Lahoud.
The events of 2005 in Lebanon took place in the context of a wider regional confrontation that pit a US-led coalition, which included Israel and “moderate” states such as Saudi Arabia, Egypt, and Jordan, against a “resistance” coalition, comprised of Iran, Syria, Hezbollah, and Hamas. The lionization of Hariri after he was assassinated in February 2005 was followed by popular protests against Syria’s domination of Lebanon, as well as the landslide victory of his son, Saad, who won the 2005 parliamentary election.
Saad became Prime Minister almost under the same conditions: a coalition with Hezbollah and its ally, the Patriotic Current, led by President Michel Aoun. In a similar manner as with Hariri, between 2000 and 2005, there was relentless outside pressure to demolish this coalition, and this succeeded on 29 November 2019, following two weeks of popular protests. Lebanon has entered a dark neoliberal tunnel with no obvious exit for several months.
Joseph Massad links the social upheavals occurring throughout the Arab world and asserts that “the major struggles in the Arab world today—in Lebanon, Iraq, Jordan, Egypt, Algeria, Tunisia, Sudan, Morocco and elsewhere—are struggles against neoliberal economics and the poverty and repression it has wrought” (Massad 2019, n.p.). However, the neoliberal forces are not dormant, and as the recent developments in Lebanon have demonstrated, despite the presence of genuine grievances, external forces and their local lackeys were able to hijack a good chunk of the social uprising and push it into one of opposing national resistance movements and anti-imperialist struggle.
Analyzing the political economy of Hariri’s major project, the reconstruction of central Beirut, is not a novelty. As early as 1992, a group of civil engineers and economists provided a seminal critique of Hariri’s project, and its findings and conclusions stand even after twenty-five years.
Curiously, Vloeberghs dismisses Corm’s critical writings on Hariri. He claims that Corm had an agenda. However, Corm was a scholar long before he served in public office. His writings on sectarianism in multi-confessional societies, the Middle Eastern economy and Lebanese history were well known twenty-five years before he became a cabinet minister (Corm 2005).
The CDR was established in 1977, long after Shihab’s presidency, but veteran Shihabists were behind its creation, notably Shihab’s confidante, President Elias Sarkis, and Prime Minister Huss, a hardline Shihabist reformer.
Al-Maqasid was established in Beirut in 1878 as a Sunni Muslim philanthropic educational association.
Najib Miqati later became a member of parliament and then prime minister.
When Shalaq became telecommunications minister in 1995, he was succeeded as president of the CDR by Nabil al-Jisr, another Hariri employee.
Hannes Baumann’s dismissal of Wakim’s book as “ill-documented” is inaccurate. Not only did it have twenty-three printings but also it contains a large amount of official government documents, real estate registry documents, and various corporate papers which are not available in any other publication. The fact the book was unchallenged in court by the almost fifty individuals who were critiqued after twenty years since its publication in 1998 speaks volumes. For these reasons, Wakim’s work requires attention and deserves credit, as much of its content was proven accurate in later revelations over the years.