Beirut is the capital and largest city of Lebanon. The city is situated on a peninsula at the midpoint of Lebanon's Mediterranean coast. Beirut has been inhabited for more than 5,000 years, and was one of Phoenicia's most prominent city states, making it one of the oldest cities in the world. Beirut is an important seaport for the country and region, and rated a Beta + World City by the Globalization and World Cities Research Network. Beirut was severely damaged by the Lebanese Civil War and the massive explosion in the Port of Beirut. Its cultural landscape underwent major reconstruction.
The fireball that engulfed the Port of Beirut on August 4th, 2020, was perhaps the most spectacular event ever caught on camera. It was the horrifyingly literal bursting of a bubble that had been accumulating in size and sludge for the last 30 years. The blast killed over 200 people and injured around 7000. The destruction of the country’s only port, combined with the supply chain shocks of the pandemic, was devastating for a country that imports nearly everything. The wholesale collapse of the country’s financial system one year prior to the explosion had already put it in a fragile position. This perfect storm of calamity would have paralyzed even the best of regimes. Lebanon didn’t stand a chance.
Reminders of the disaster still surround the city. They stand out next to the eerily dark city created by Lebanon’s acute electricity crisis. When the sun sets, it’s as if Beirut falls into a coma.
Those with means are fleeing Lebanon in massive numbers. Those still here, almost universally out of necessity, are just waiting it out: some wait for next spring’s elections, and others for the new government to secure an IMF bailout. The region in which modern Lebanon is situated has been a trade hub since Biblical times. It is a crucible that allows for the exchange of capital and culture between the Middle East and Europe. It has patronage and stakeholders from the Sunni, Shia, and Christian worlds, all of whom have an interest in Lebanon’s revival, at least in their image.
But Lebanon is a failed state, and no amount of promising geopolitical advantages make up for the infrastructure of a functional state. In the short term, everyone is bearish on Lebanon. It faces the possibilities of partition, conservatorship, war, or some mix of the three. This is a country far past the point of managed decline. The question is whether someone can still manage a crash-landing before it’s too late to pull out of the nosedive.
Lebanon’s Deindustrial Disaster
Nihilism has swept over Lebanon’s youth, who have lost all faith in a government that can’t perform the basic functions of civil society.
How the fire started is a mystery. Many people suspect insurance fraud: why did the building burn on opposite sides and yet not through the middle? Arson seems like the only explanation. There is no suspect with a more obvious motive than the company that owns the project: Solidere. The company began as a real estate development firm, created in 1992 with a mandate of rebuilding Beirut after the civil war.
The largest shareholder at the time of inception was the newly-elected prime minister, Rafik Hariri. Hariri expropriated massive amounts of land from Solidere’s previous owners and unfairly compensated them below-market rates. He embarked on a project to make central Beirut an attractive destination for the international elite, supplanting the pre-war cultural foundations for expensive venues and postmodern architecture. This hyper-commodified vision for central Beirut was similar to that of Dubai, which was also a massive parking lot at the time. But while Dubai could be marketed as a global city rising out of the desert, many Lebanese saw the commercialized rebuilding as an insult to their cultural and historical distinction.
Removing barriers to import had the result of sidelining Lebanon’s powerful industrialists and turning Lebanon into a service economy. The majority of industrialists at the time when Hariri took power were Maronite Christians, while the Sunnis, represented by Hariri’s Future Movement, controlled Lebanon’s import and export markets. The latter’s interests won the day, paving the way both for years of relative Lebanese prosperity and then for its full-scale economic collapse years later.
Towards the end of 2018 and into 2019, signs were emerging that Lebanon was bound for economic disaster. The banking sector had lent three-quarters of its deposits to the government and was becoming illiquid. The Lebanese pound’s fixed USD exchange rate of 1500:1 was impossible to sustain. Those who needed access to relatively large amounts of dollars were the first to notice. In Garo’s case, it was friends in jewelry who alerted him that things were about to go south. When they tried to withdraw 50 to 100,000 U.S. dollars in cash, the banks only fulfilled half their request and gave the rest as a check. The lack of liquidity these jewelers experienced when attempting to withdraw relatively large sums of money would soon be felt by everyone who tried to withdraw from a Lebanese bank, no matter the sum. Since the banking system collapsed in 2019, Lebanon’s real GDP has dropped by a jaw-dropping 45%, making it the second-worst financial collapse in history.
The defunct banking system means that credit cards and ATMs are not an option. The black market is where people get lira at the real price. A medium of exchange with mutually agreed upon value no longer holds true in Lebanon. It depends on who is negotiating for what, and you’re bound to get a bad deal if they know you’re a foreigner. If you go to an exchange as a foreigner, you do it through a local proxy.
Primarily blaming Lebanon’s corrupt elite and their foreign masters is the most common explanation for the country’s failure. But ultimately, a corrupt state tends to inculcate its vices in the population itself. The government has always been corrupt, but the people didn’t care because their pockets were being lined too. They pay no taxes. They only care now because their lifestyle is being affected. This is the fight for a nation, and what did everyone do at the first sign of trouble? They packed up and left.
As more of Lebanon’s educated elite flee, the services sector is also evaporating. Lebanon’s economic foundation is undergoing a painful, but necessary transformation. If inflation fuels demand for Lebanese industry, then perhaps the country can reign in its massive trade deficit. Without domestic production, Lebanese merchants are stuck with the problem of importing goods at world market rates and trying to sell them in the Lebanese economy. Many have determined that hoarding is preferable to accepting a massive discount on their sale.
While shortages will cause some to endure excruciating pain from these second- and third-rate anesthetic remedies, some drugs don’t have substitutes. Lebanon isn’t embroiled in an active civil war in 2021. But according to some residents who lived through it, conditions now are worse than during the war itself.
As collapse unfolds around them, many Lebanese people are doing what they always have: escaping into one void or another. Escapism became a signature feature of the Lebanese spirit during the civil war. Instead of waiting for an end, Lebanese people learned to adapt to the violence and live alongside it. With a considerable degree of luck, street smarts, and the satiation of wealth, it was possible to alleviate the misery. There was a profitable import mix of diamonds, smoked salmon, caviar, small arms, and explosives. Lebanese people resorted to indulging in the country’s great affluence as a coping mechanism.
Many of Lebanon’s politicians and oligarchs have no choice but to stay in the country, which is indispensable to their rent-seeking operations and personal networks. It’s where their security is guaranteed and where their assets are tied up. But going to restaurants or being seen in their favorite public spots anymore has become a risky endeavor. Even prominent figures must now fear harassment, or worse.
Now that Lebanon is no longer an engine for prosperity, its short-term trajectory is grave. As a region, Lebanon may yet be back in the long run, but no amount of historic geopolitical advantages make up for the fact that the country lacks anything like a functional regime. Until that situation changes, its other calamities can only continue. And at this point, it seems certain that change won’t come from within. Corruption in Lebanon compromises every level of stratification, not just the elite: the citizen avoids taxes, the political parties smuggle fuel, and the power-brokers have their private interests to take care of. Those still here increasingly believe that the country in its current form is beyond saving. But there’s a utility to their apathy. Most people abandoned Lebanon long before it reached this point of deterioration; they never felt it was their responsibility to bail out a sinking ship. Indeed, the average citizen has had little power to influence the corrupt nature of the state. Better to carve out your own little piece of it and keep life going as best you can.
The next chapter in Lebanese history is unpredictable because when there are so many looming catastrophes, you can’t predict which will materialize first. One thing you do know: the center cannot hold, so get out while you can.