A world of economic contradictions

Published January 24th, 2012 - 04:30 GMT
By allowing the government to find new sources of funding without resorting to direct taxation of income, thus bypassing socialist principles in favor of more passive methods of taxation, Lebanon can succeed in empowering its youth and advancing its economy
By allowing the government to find new sources of funding without resorting to direct taxation of income, thus bypassing socialist principles in favor of more passive methods of taxation, Lebanon can succeed in empowering its youth and advancing its economy

There has been a well-known story circulating for over a decade that demonstrates the capability of the human mind to find ways to do less and gain more. It concerns an American university professor who taught his students about socialism through a class experiment by averaging their grades so that no one would fail.

With every exam, the efforts of the hard-working students declined in reaction to their less enthusiastic friends and the average grade declined incrementally until it reached a point where all the students failed. As a counter-argument to the students’ protests, the professor told them that socialism would also ultimately fail because without rewards no one will want to try, let alone succeed, whereas when the reward is great, the effort to succeed is great.

The moral of the story can be applied to any government through common sense and progressive political thinking. It is impossible to strip the wealthy of their prosperity and redistribute it to the poor. As the resources of the government are limited, it is only natural that sacrifices must be made by many layers of society to provide the funds necessary to ensure welfare.

When one side sees they are prospering from the work of others, it is only natural that they lose any will to work themselves. And as they reap the benefits from others’ work, the working side will lose any incentive to contribute in light of the injustice occurring from their point of view.

For Lebanon, the answer lies in multiplying wealth through the creation of opportunities by introducing research and development programs that will ultimately stimulate economic growth and encourage the youth to increase their stake in the nation’s future. Multiplying wealth has never succeeded by dividing wealth. Furthermore, by allowing the government to find new sources of funding without resorting to direct taxation of income, thus bypassing socialist principles in favor of more passive methods of taxation, Lebanon can succeed in empowering its youth and advancing its economy.

Two questions inevitably arise from two opposite perspectives. The hard-working, wealthy individuals will wonder whether there is justice in tapping their earnings for the benefit of complete strangers. The opposing levels of society will resort to the same call for justice by claiming that they are even more deserving of their nation’s wealth on any number of grounds ranging from governmental inadequacy to corruption and basic human rights.

It is time to rethink the socialist model applied to Lebanon without leaving the perceived model of a free economy unchecked. The state of stagnation that swells in Lebanon’s economy contradicts the liberal economy open to the world, as was the case with prosperous countries such as Brazil and Turkey, which have forsaken socialism altogether for a mixed system of free market economics.

The fact of the matter is that Lebanon’s economy is closed from the inside, just like the minds of those who have no opportunity or incentive to create or utilize their full potential. However, Lebanon has the potential to become a regional hub and this has every possibility of becoming a reality given the high level of Lebanon’s education and the existence of know-how that could attract investment from abroad and turn the nation into a solid contender on the global stage.

With calm prevailing in the country since 2008, the relatively low impact of the world financial crisis, its highly skilled workforce, strategic geographic positioning and stable currency, Lebanon has had every opportunity of becoming a serious economic competitor to any nation in any sector of industry and all service sectors.

The Lebanese banking sector has survived the global financial crisis in no small part due to the fact that its interest rate spread remains at 2.1 percent, which makes the country a very attractive location for financial operations. But this has done little to aid the Lebanese economy, which remains heavily dependent on the services sector and merchandise trade, while struggling with an official unemployment rate of 10 percent, which in reality stands at well above 20 percent.

Furthermore, it is simply unsustainable to exist in an economy of 6 percent inflation, which keeps on rising, with growth dwindling by 2.5 percent annually, according to the International Monetary Fund. Considering that the MENA region’s growth stands at an average of 3.6 percent, it is certain that Lebanon’s economic situation can achieve and even surpass these values. It is the obligation of the government to stimulate the economy and to give the people opportunities to expand and invest. New ways must be found to fight corruption and reform one of the most inefficient governing systems on the planet.

Importing modern economic principles of taxation, such as a Windfall Tax, will give the government the opportunity to receive a share from sizeable profits made by companies like Solidere an other companies which benefited from unfair contracts. Efficient regulation of import and export operations in Lebanon would also increase the nation’s income dramatically. As the gateway of the Middle East, the Port of Beirut should not be allowed to collect taxes and spend that income any way it sees fit without supervision. The income of the port stands at over $160 million per year, and these funds should be part of the nation’s budget.

The issue of transparency and competitiveness in Lebanon is still at the forefront of the economy’s woes. Yet steps can be taken to reduce this inadequacy by implementing transparency laws for Internet-based operations and companies for later auditing, and by introducing the issuance of all licenses electronically for greater control.

The introduction of a competitiveness council for the simplification and modernization of administrative procedures for public bodies would greatly enhance the capacities of the economy. It would be imperative to create this council on the basis of a private initiative with public involvement to ensure proper transparency and efficiency. Furthermore, the dismantling of monopolies and the application of the principles of competition should be adopted as soon as possible.

The Lebanese real estate industry and lands reclaimed from the sea are two major sources of income in dire need of regulation. Meanwhile, Lebanon’s international airport is another major source of potential revenue if the government recognizes its stake in the facility.

The cancellation of official stamps would also benefit the economy due to their inefficiency as a tax with a cost exceeding 20 percent to print and distribute along with the possibility of abuse. Increasing the VAT by just 1 percent would be enough to compensate for revenues from stamps and would reduce the waste of resources and manpower.

The imposition of high taxes for the import of tobacco and the regulation of roadside advertisements are only some of the other sources available to the Lebanese government to support welfare programs. More importantly, the legalization of the import of weapons and ammunition can bring considerable revenue to the government’s coffers.

The operations of crushers and quarries must also be regulated by law and taxed through fees paid in advance, with legal limits on quotas based on geological surveys of the area for environmental protection.

A direct step toward social welfare can be achieved by restructuring the social security fund and reforming and developing public education, both of which are in desperate need of attention, while major overhaul of the infrastructure and the development of a mass transit system can only aid the Lebanese government and economy in streamlining badly needed reforms.

With its debt exceeding $58 billion, and the future of its youth at stake, it is high time to force Lebanon into an era of change by stimulating the economy and preserving individual justice through intelligent and creative reforms that have the potential of becoming reality. The only barrier that needs to be overcome is the will.

Fadi Abboud, The Tourism Minister

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