SEPS-92-gaspard.qxd 11/14/2003 10:20 AM Page i A POLITICAL ECONOMY OF LEBANON, 1948–2002 SEPS-92-gaspard.qxd 11/14/2003 10:20 AM Page ii SOCIAL, ECONOMIC AND POLITICAL STUDIES OF THE MIDDLE EAST AND ASIA (S.E.P.S.M.E.A.) (Founding editor: C.A.O. van Nieuwenhuijze) Editor REINHARD SCHULZE Advisory Board Dale Eickelman (Dartmouth College) Roger Owen (Harvard University) Judith Tucker (Georgetown University) Yann Richard (Sorbonne Nouvelle) VOLUME 92 SEPS-92-gaspard.qxd 11/14/2003 10:20 AM Page iii A POLITICAL ECONOMY OF LEBANON, 1948–2002 The Limits of Laissez-faire BY TOUFIC K. GASPARD BRILL LEIDEN • BOSTON 2004 SEPS-92-gaspard.qxd 11/14/2003 10:20 AM Page iv This book is printed on acid-free paper. Library of Congress Cataloging-in-Publication Data Gaspard, Toufic K. A political economy of Lebanon, 1948-2002 : the limits of laissez-faire / by Toufic K. Gaspard. p. cm. — (Social, economic, and political studies of the Middle East and Asia, ISSN 1385-3376 ; v. 92) Includes bibliographical references (p. ) and index. ISBN 90-04-13259-7 1. Lebanon—Economic conditions—20th century. 2. Economic development—Political aspects—Lebanon—History—20th century. 3. Free enterprise—Lebanon—History—20th century. I. Title. II. Series. HC415.24.G37 2003 330.95692’043—dc22 2003060373 ISSN 1385-3376 ISBN 90 04 13259 7 © Copyright 2004 by Koninklijke Brill NV, Leiden, The Netherlands All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. 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Fees are subject to change. printed in the netherlands GASPARD_F1_v-xx 11/11/03 10:58 AM Page v v To Nada, Kabalan, Yumna and, not least, Alya GASPARD_F1_v-xx 11/11/03 10:58 AM Page vi vi This page intentionally left blank GASPARD_F1_v-xx 11/11/03 10:58 AM Page vii vii CONTENTS List of tables .............................................................................. xiii Preface ........................................................................................ xvii A political economy of Lebanon, 1948–2002: The limits of laissez-faire ...................................................... xix Introduction ................................................................................ 1 CHAPTER ONE OF SPONTANEITY AND DESIGN: THE MARKET AND ECONOMIC DEVELOPMENT In the mainstream: the efficiency of markets .......................... 6 Fundamentals of neoclassical economics .............................. 6 Updating the pure neoclassical theory ................................ 10 Neoclassical theory and developing countries ...................... 13 Post-Keynesianism, or the revival of classical political economy .................................................................................. 15 The Post-Keynesian critique ................................................ 16 What Post-Keynesianism is .................................................. 23 Development: a Post-Keynesian perspective ........................ 29 The radical critique .................................................................. 32 Capitalism and economic development ................................ 33 Capitalism, between chance and necessity .......................... 35 Modernism versus Postmodernism in economics? .............. 37 An assessment ............................................................................ 39 GASPARD_F1_v-xx 11/11/03 10:58 AM Page viii viii CHAPTER TWO THE ROAD TO LAISSEZ-FAIRE: A HISTORICAL PERSPECTIVE Early capitalism and industrialization in 19th century Lebanon .................................................................................. 43 The end of feudalism ............................................................ 44 The seeds of capitalism ........................................................ 45 The demise of industry ........................................................ 47 Industrial resurgence and the triumph of laissez-faire, 1920–1950 .............................................................................. 49 The new economic environment .......................................... 50 The second industrial opportunity ........................................ 51 The triumph of laissez-faire .................................................. 54 The rules of the game .............................................................. 59 The political setting .............................................................. 60 The factor and product markets .......................................... 63 CHAPTER THREE GROWTH WITHOUT DEVELOPMENT The record of growth and development in Lebanon ............ 68 Growth and development performance: a first impression ................................................................ 70 The growth record re-examined .......................................... 72 The distribution of income and wealth .............................. 73 Education, skills and culture under laissez-faire .................. 76 Labor and skills in the development process .......................... 80 Skills: whence they came and where they went ................ 82 The underdevelopment of capitalism .................................. 85 The market without capitalism ................................................ 88 Independent labor and development .................................... 88 Independent activity in agriculture ...................................... 90 Independent activity in industry and services .................... 93 Transfers and emigration ...................................................... 95 GASPARD_F1_v-xx 11/11/03 10:58 AM Page ix ix CHAPTER FOUR LAISSEZ-FAIRE AGAINST INDUSTRY Industry in context .................................................................... 102 A historical background ........................................................ 102 Cost and demand conditions ................................................ 106 Other structural elements ...................................................... 108 Manufacturing performance ...................................................... 112 The industrial series .............................................................. 112 Productivity and linkages ...................................................... 115 What happened? ........................................................................ 120 A theoretical interlude: Pasinetti’s dynamics of growth ...... 120 Mechanization, capital intensity and productivity .............. 124 Capital accumulation under laissez-faire .................................. 128 Consumption versus investment ............................................ 128 Industrialization without capitalism ...................................... 131 The moral of the story .............................................................. 136 The conservatism of laissez-faire .......................................... 136 What could have been .......................................................... 138 CHAPTER FIVE THE REPRODUCTION OF LAISSEZ-FAIRE The exchange economy ............................................................ 142 Breathless: laissez-faire without support .............................. 142 Trade and transfers: the balance of payments .................... 146 Structural change under laissez-faire ........................................ 151 Growth without structural change ........................................ 151 The productivity of laissez-faire ............................................ 156 Income distribution and the development of capitalism ........ 160 Income distribution and profitability .................................... 160 Subsistence and the structure of wages .............................. 163 The development of waged employment ............................ 167 GASPARD_F1_v-xx 11/11/03 10:58 AM Page x x Playing the game: behavior and the reproduction of laissez-faire .............................................................................. 169 Life after profits: business investment behavior .................. 170 Households as workers .......................................................... 175 The foreign sector: a financial relationship ........................ 178 Government: subsidizing the market .................................... 180 A summing-up ............................................................................ 184 CHAPTER SIX FROM CRISIS TO RECONSTRUCTION Coping with war, 1975–1990 .................................................. 187 Political milestones ................................................................ 187 The efficiency of laissez-faire ................................................ 189 Banks: the jewel in the crown .................................................. 192 Banking structure and evolution, 1950–2002 ...................... 193 Financial versus economic intermediation ............................ 196 Laissez-faire in crisis .................................................................. 198 The setting .............................................................................. 199 Going all the way: anatomy of a currency crisis .............. 200 Aftermath ...............................................................................