The Platform

Protestors commemorating the 2020 Beirut explosion

Lebanon is currently undergoing profound economic change.

This examination seeks to navigate through several economic theories in the context of Lebanon’s current situation. The question remains: Should Lebanon adhere to laissez-faire economics or opt for proactive government intervention during its economic crisis?

Lebanon’s economic crisis provides a rare case study for the perennial debate between laissez-faire economics and government intervention. The crisis has prompted a reexamination of the theories proposed by economic scholars such as Adam Smith, Milton Friedman, Friedrich Hayek, and Joseph Schumpeter.

In Lebanon, the laissez-faire approach seems to have taken a natural course due to political gridlock, leading to a self-regulating market as envisioned by Adam Smith. His “invisible hand” theory, which advocates for market autonomy, is mirrored in Lebanon’s organic market recalibrations. Surprisingly, the lack of government interference has fostered a transformative journey in the economic sector, with market forces reshaping the landscape. However, this has also led to debates about the need for strategic monetary policies, echoing Friedman’s advocacy for a stable money supply.

Hayek’s views on free markets are observable in Lebanon’s burgeoning new enterprises, which have emerged as inefficient ones have fallen away. This phenomenon raises questions about the efficacy of non-interventionist policies in reviving economies hit by crises. Simultaneously, Schumpeter’s “creative destruction” is at play, as Lebanon witnesses the closure of outdated institutions and the rise of innovative startups. Yet, this raises concerns about the social upheaval and displacement of workers resulting from such unchecked market dynamics.

The relevance of the aforementioned economic philosophies is undeniable when examining Lebanon’s circumstances. Smith’s “invisible hand” is evident where political inaction has allowed market forces to direct economic activity. Yet, Lebanon’s spontaneous market adjustments also underline the absence of government intervention, which brings significant challenges to light. For instance, Smith’s concept assumes perfect competition, but market imperfections such as monopolies and externalities often necessitate government intervention to ensure fairness and efficiency.

Friedman’s focus on stable money supply growth is critical, especially during crises when the government’s role in monetary policy is essential. Without such intervention, the economy risks uncontrolled inflation or deflation, potentially exacerbating instability and hampering recovery.

Hayek’s preference for unregulated markets does not consider market failures, particularly evident in Lebanon’s crisis, where deep-seated economic issues persist. Exclusive reliance on market forces can perpetuate instability and deepen social inequalities. Similarly, Schumpeter’s “creative destruction,” while fostering innovation, can also cause social unrest and economic distress without adequate government support for those affected.

Governments play a pivotal role in stabilizing economies, regulating markets, and ensuring social welfare. During crises, proactive interventions are crucial for providing relief, fostering recovery, and ensuring the welfare of citizens, which pure market mechanisms may inadequately address.

Lebanon’s economic saga serves as a poignant reminder that while market forces have their advantages, they are not a universal solution. Prudent government interventions are indispensable for navigating crises and promoting sustainable growth.

In the interplay between laissez-faire and government intervention, Lebanon’s case exemplifies the clash between idealistic economic theories and practical necessities. The “invisible hand,” the need for monetary stability, the benefits of free markets, and the mechanism of “creative destruction” all contribute to a vibrant economic mosaic within Lebanon’s landscape. However, the realities on the ground echo the need for government guidance to address the discordant elements of market imperfections and inequalities.

As we conclude this discussion, Lebanon’s story prompts us to reconsider the balance between laissez-faire principles and government action. The case study highlights the dangers of relying solely on market dynamics and underscores the government’s crucial role in steering economies toward stability and inclusivity.

The narrative of Lebanon’s economic turmoil remains in progress, an unfinished chapter in the broader story of economic evolution. The synthesis of market autonomy and government intervention may well be the elixir needed to rejuvenate economies from crisis. The answer to this complex puzzle lies in a balanced approach, integrating the strengths of both economic freedom and thoughtful governance—a mosaic still to be completed in the unfolding narrative of economic resurgence.

Mohammad Ibrahim Fheili is currently serving as an Executive in Residence with Suliman S. Olayan School of Business (OSB) at the American University of Beirut (AUB), a Risk Strategist, and Capacity Building Expert with focus on the financial sector. He has served in a number of financial institutions in the Levant region. He served as an advisor to the Union of Arab Banks, and the World Union of Arab Bankers on risk and capacity building. Mohammad taught economics, banking and risk management at Louisiana State University (LSU) - Baton Rouge, and the Lebanese American University (LAU) - Beirut. Mohammad received his university education at Louisiana State University, main campus in Baton Rouge, Louisiana.