This is a modified English-language version of an article that appeared in the French daily Le Monde, which can be read here.
For the first time in recent history, the Lebanese have been united in revolt. Since October 17 they have been protesting, but not according to their religious, social, or geographical backgrounds. They are calling for an end to the corrupt political system kept in place by a political and economic elite that has for far too long denied them economic opportunities and the simple ability to make ends meet.
Their first success came on October 29, when Prime Minister Sa‘d Hariri announced the resignation of his government. The widespread grievances against the elite are justified when we take a look at the data: Lebanon has one of the highest levels of inequality in the world, alongside Chile, Brazil, and South Africa. In a study published by the World Inequality Lab, I was able to estimate the distribution of Lebanese national income between 2005 and 2014 thanks to newly available individual tax records. The results speak for themselves: The richest 1 percent of Lebanese receives 25 percent of national income. To put this into perspective, in the United States and France, where inequality is increasing and is at the heart of public debates, the richest 1 percent receives 19 percent and 11 percent of total national income, respectively.
Another striking statistic in Lebanon is that the richest 0.1 percent of the population, around 3,700 people, earns as much as the bottom 50 percent, almost 2 million people—both equivalent to one tenth of national income. The richest group, which includes members of the political class, enjoys a standard of living similar to their counterparts in high-income countries, while the poorest suffer from extreme poverty, as in low-income countries. This polarization exacerbates the disconnect between the ruling elite and “the rest.” Shi‘a from the southern city of Tyre and Sunnis from the northern city of Tripoli have finally found common ground, because the political elite extracts large rents at their expense.
This concentration of income in the hands of the few is hardly a new phenomenon. Inequality has been extreme in Lebanon since at least 2005, the first year for which we have data. Why did inequality remain absent from the public debate until now?
The lack of figures on the socioeconomic situation in the country is one reason. The last national census was held in 1932. A banking secrecy law has been in force since 1956. And the last study estimating income distribution before my own analysis dates back to 1960! This lack of transparency contributed to a widespread narrative that inequality in Lebanon was not high by historical and international standards.
Another reason might be that the political system, which is based on religious patronage, creates citizens who primarily identify with their sect not their class. The political elites have strong incentives to maintain and strengthen these identities that allow them to favor financial and economic arrangements within their sect and control their respective regions. They amplify the rents extracted from the financial and real estate sectors, on which the Lebanese economy relies. In exchange, these sectarian elites provide to their communities basic public goods such as jobs, reductions in school fees, or health services. Even if the Lebanese are probably well aware of these schemes, they did not try to overthrow the system until now because in the absence of a state they preferred to have public goods provided by wealthy politicians to not having these goods at all.
Lebanon is caught in a vicious circle. Its rentier economy, coupled with the quasi-absence of a state, has caused extreme levels of inequality and poverty, which in turn have increased the public’s reliance on services provided by sectarian leaders. These enabled the latter to continue to enjoy support from the population, remain in power, and increase their wealth. Yet this, in turn, led to higher levels of inequality and a greater reliance on the system.
It took an economic and financial crisis, years of public mismanagement (in 2019 the cabinet met 20 times to finally agree on a budget last summer!), and the government’s introduction of particularly inappropriate austerity measures to finally break the cycle. This opens a historic window to undertake structural changes. These are essential to avoid the economic disaster the country faces and to allow Lebanon to exit from the political and economic deadlock in which it has been mired since the civil war’s end.
There are alternatives to austerity to tackle Lebanon’s public debt crisis. They include negotiating a form of debt relief with the country’s creditors—mostly Lebanese banks that are highly connected to the political elite. It also includes increasing fiscal revenues by creating a progressive tax on income and wealth.
With regard to taxation, there is a large avenue for improvement in Lebanon. The Lebanese state mostly relies on taxing consumption. This is notoriously regressive, as it imposes the same amount of tax on everyone, regardless of one’s income level. The state also does a very poor job of collecting revenues, with tax revenues in Lebanon representing 15 percent of GDP, against 35 percent on average in Organization for Economic Cooperation and Development countries. The personal income tax system is archaic. It taxes each source of income separately, thereby decreasing both its progressivity as well as the total amount of tax collected. The tax rates applied to the richest are quite low by international standards—on average 21 percent in Lebanon, as opposed to 37 percent in the U.S. and 45 percent in France. A key priority is to radically reform the tax system to make it rely mostly on direct taxation, as opposed to indirect taxation (tax on consumption), and to create a general and progressive income tax on all sources of income (labor and capital incomes).
Moving from income to wealth, one option is to implement an exceptional tax on private capital, in particular on real estate. This tax would probably apply to a large base of people—although we still do not have reliable estimates of total private capital in Lebanon. Lebanese billionaires’ wealth, the tip of the iceberg, represented on average 20 percent of national income between 2005 and 2016, as opposed to 2 percent in China, 5 percent in France, and 10 percent in the U.S. This suggests that such a tax might raise a considerable amount of revenue in a short time. Wealth in Lebanon comes mostly from inefficient rents. Decreasing their sources would mean improving the welfare of the many, especially when we know that wealth inequality is a primary cause of income inequality.
The amounts collected could help to weaken sectarian patronage and to undertake needed investments in infrastructure, education, and health. These structural measures could address the most important demand of protestors: An opportunity to have a future.