What was that? How much?

Honesty and transparency needed at the top to build confidence

An economy that can serve the interests of all our people requires confidence. The necessary conditions for that economic confidence are both security and straight talk from those who are entrusted to protect our nation’s growth. That is why it is so damaging that no one called out the president or the prime minister for inflating Lebanon’s economic progress to the public and international community last month.

According to our Prime Minister Najib Mikati’s office, “estimated results” for last year’s economic growth have come to 5 percent and growth in the first quarter of this year increased by “leaps and bounds”. If that makes you think that one of his speechwriters has a substance abuse problem, you are not alone. No one — from the international financial institutions, to local academics, or even the humble journalists who monitor our economy — thinks growth last year exceeded 1.5 percent, not to mention those who believe the economy has been contracting since the third quarter of 2011.

Not to be outdone, at a United Nations conference last month President Michel Sleiman heralded the achievements of the agricultural sector, claiming it now makes up 6.5 percent of the economy while it had previously made up 5 percent. Of course, he neglected to mention that value added in the sector fell in 2010. There are no national accounts for 2011 and certainly not for 2012.

The relatively productive agriculture minister, Hussein Hajj Hassan, who flanked the president at the conference last month also trumpeted his ministry’s development platform for the sector, issued in 2009. A paper was issued in 2009 that contains a laundry list of issues facing the sector, followed by bullet points and badly drawn Microsoft Word Tables stuffed with the keywords governments love to use: “enhance” this, “develop” that, “reduce costs”, “create jobs”. Naturally, the only real targets in the document are those aimed at increasing staff (read: patronage) within the ministry. Since then none of the laws he proposed have passed parliament and the strategy ends next year anyway.

Instead of trumpeting overly rosy figures and touting their outstanding visions, perhaps some more humility would befit a political class that has not managed to have a census in more than 80 years, or even knows what the country’s gross domestic product, employment or inflation rates really are. The statistical, administrative and monitoring frameworks needed to accurately calculate these things are still some way off. In the meantime, there are real indicators that can be monitored in a much easier fashion to appraise the government.
Take, for instance, another half-nation of around five million hard-nosed people with limited government ability to make decisions: Scotland. In a surprisingly successful effort to reform government, the Scots have come up with a system that, on the surface, reads very much like the agriculture ministry’s ‘strategy’. Their ‘National Performance Framework’ starts with a purpose (basically ‘increasing sustainable economic growth’), drills down into five purposes of equally loose language: ‘safer & stronger’, ‘healthier’, ‘smarter’, ‘greener’, ‘wealthier & fairer’. Each category then has indicators (such as improved levels of educational attainment) and measurement criteria (such as gaps in student performance between Scotland and countries from the Organization for Economic Cooperation and Development), with progress reports posted online and updated regularly. The government doesn’t meet all of its targets, in fact they maintain the status quo much of the time, but people believe them when they succeed and listen to them when they explain why they fail. This approach to governance was a contributing factor to ruling Scottish National Party winning an outright majority in 2011 in an electoral system that was designed not to allow that to happen.

Lebanese politicians should take heed: honesty and transparency in governance builds confidence — from international institutions and partners, from the business community, and from those who are supposed to be paramount in all this, the Lebanese. When our economy is suffering, smiling to us and telling us everything is fine will not make it easier to pay rent or get a decent job. Rather, what is needed is an honest appraisal of where things are failing and what is lacking — at least then we will know where to begin to fix things.

First published in Executive Magazine’s November 2012 print issue

Lebanese teachers carry banners during a rally last December as they demand higher salaries in Beirut, Lebanon. (Mohammad Azakir/The Daily Star)

Government must demand more from unions for better pay

Whether any good comes of the strikes called by the various unions tomorrow over the cabinet’s intransigence and delay tactics in passing the new public salary scale law is dubious, at best. The unions (especially those close to Parliament Speaker Nabih Berri) are far from neutral in the games that feudal lords play with people’s livelihoods. Nor do they base their demands on actual economic facts; rather they rely on our frustration with rising prices and falling real wages, something we still fail to address or even accurately measure. If the unions get what they are asking for, the government will be even more broke, and in all likelihood, inflation will rise while the economy crashes into a recession and deeper unemployment: in more technical terms, stagflation.  But that’s not to say they don’t have a point.

It is against the basic principle of equity in government that those employed in the private sector should get a pay adjustment (even if some are still waiting for it) while those in the public sector are put at a disadvantage. For much too long successive governments have gotten away with the socioeconomic equivalent of kicking the can down the road. Every time there has been a reasonable demand to improve purchasing power, government has resorted to the only shortsighted policy instrument it knows how to use: raising wages. Then the unions proclaim victory, only to repeat the cycle a few years later. But this time, there is no road left, only a financial cliff to fall over.

Prime Minister Mikati (who we should not forget is a businessman first and a politician second) knows full well that government cannot fund the increase, estimated at as high as $2 billion a year. Even half that increase in the deficit would result in us paying an ineffective public sector salaries over and above what we already pay the banks in debt servicing, not to mention explode the public stock of debt at a time when we need more government agency to halt a recession, not less.

As a force of habit, the government will have to look to the lush banking sector whose profits are falling and will have little appetite for new public lending—they also know all too well that their main obligator has no one else to look to. That’s why the Adnan Kassar, the octogenarian banker and effective spokesman for the private sector, is so opposed to it. Were the banks to accept to lend government further, it would only be for a price: higher interest rates. That would mean a return to the policies of raising new debt  for higher rates (in addition to servicing repayments) without investment in the public good. We all know where that got us the first time around.

This is likely why Mikati is proposing to pay the increases in installments, something that theoretically could stem some immediate inflation, but will ultimately have the same effect. That strategy could also lower the interest rates charged on the first tranche and does constitute a well thought out stall tactic. But anyone who has done business in Lebanon knows that once the first check is paid, the next one has strings attached, or just simply never arrives. The unions and those behind them wont be too cheery about that.

But if we are to drive ourselves into financial oblivion we might as well get something out of it. Instead of attempting to placate public sector workers through piecemeal reforms, government can now demand more, for more.

It is nothing more than basic labor market dynamics to ask employees to be more productive than when you give them a pay rise. To start with, instead of shutting the doors at 2pm (and 11am on Fridays), the public sector needs to finally make that transition to a 5-day workweek and get off at five. And given that vacancies are rife within the public sector, those contract workers (with the exception of professors at the Lebanese University) who insist on becoming permanent employees should only be able to do so once new organizational structures are implemented. That would make more sense than paying contractors to fill jobs that were intended to serve a public administration in the 1960s.

Only then will any pay rise for the public sector make socioeconomic sense. Otherwise, we merely allow the feudal lords who control public sector employment to turn people into paupers by extending their patronage, and just wait for the cycle to repeat itself.

First published in Executive on October 9, 2012

Old friends, new political considerations (Photo: Israel Hadari/NYT)

How Mitt learned to stop worrying and love the bomb

By Mitt Romney’s own admission he has already lost some 47 percent of the vote in the race for the United States presidency to those who believe they are “entitled to healthcare, to food, to housing,” and that the “government has a responsibility to care for them.” So if the Republican candidate is to muster the majority to win the White House, he needs help. Thankfully for him he has his old friend from the Boston financial world to try to bail him out: Former Boston Consulting Group executive Benjamin (Bibi) Netanyahu.

Touching down in the US last month, Israel’s Prime Minister went on a whirlwind tour lambasting the Obama administration’s policy on Iran for not drawing the ‘red line’ that he wanted to see. Later in the month, the right wing group Secure America Now ran a campaign attacking Obama showing a speech by Bibi pleading to the world that Iran is close to developing a nuclear weapon and then reiterating Romney’s rhetoric on Obama’s Iran policy: “The world needs American strength. Not apologies.”

Bibi’s administration has predictably denied that they are picking favorites in the US election. But that has not fooled most political commentators and journalists in the US, Israel or anywhere else who see the PM as clearly favoring Romney. Secure America Now, which maintains one of Bibi’s ex-advisors on its board, has a clear purpose: to air in the districts of Florida where the Jewish vote, estimated at some 20 percent of the total, holds sway at the national level.

For those who remember, Florida — which holds more than 10 percent of the votes needed to win the presidency — was the state that tipped the scales in the contested 2000 election that saw George W. Bush enter the White House. Romney, who (by American standards) is trailing wildly in the polls, will need these and other swing states, as well as all the help he can get from his friends in Tel Aviv to have any chance of winning.

It’s obvious why Romney wants to push the Iranian nuclear issue to the forefront of an election dominated by the economy. It will be much harder for Romney to win over undecided votes by advocating his trickle-down economics against Obama’s more populous Keynesian positions. What is less clear is what the difference between Romney and Obama actually is over Iran and Israel.

Despite the fact that not even the International Atomic Energy Agency knows how close Iran may be to having a nuclear weapon, or if it even intends to build one, Bibi assures us all that Iran is “90 percent there”.

But when Romney is cornered, he admits that he draws the same ‘red line’ as Obama on Iran: “My red line is Iran may not have a nuclear weapon,” he said to an American news channel last month.

He then proceeded to suggest that the Iranians could transfer such technology to Hamas or Hezbollah and, if that occurred, it could threaten US shores. How exactly Iran could transfer these materials, under the watchful eye of Western satellites, through Iraq and a civil war in Syria to Hezbollah, or through an Iran-paranoid Israel to reach Gaza, it seems only Romney knows. Apparently he also has information that suggests both organizations have the capacity to then somehow transport these bombs to the US.

It is a fact of geopolitics that the election outcome in the US will have large implications for the Middle East but as far as Iran’s nukes are concerned, the only discernible difference between Obama and Romney is that the former’s red line is the bomb, while that latter’s is the “capacity” to build one. But if his friend Bibi is correct, Tehran is at “break out” capability and can produce a bomb in a relatively short period of time. So, if he is to be true to his word, Romney should advocate bombing Iran today, even if that would gain him few votes from Americans, who overwhelmingly support getting out of the wars they are in, not getting involved in any more. Israel doing it is another issue, and one Romney says he would respect. But most experts have duly noted that any such action would require US military assistance, derailing the process of enrichment at best and setting off a domino effect in the Middle East at worst.

Sorry Romney, you’re going to have to find another way to avoid your self-imposed margin of error.

This article first appeared in Executive’s October 2012 Middle East Edition 

A class on expansion, revenue growth and more affordable tuition

There was a time during the civil war when the Lebanese American University (LAU) did not know if it would have enough money to pay its staff at the end of every month, according to its president Joseph Jabbra. That is hardly the case today.

For the past several years the university has been increasing its revenue base by some five to six percent every year (see table) and has not had a deficit for the past eight years, according to Jabbra. According to its president, the university’s assets are valued at $602 million between its Beirut and Byblos campuses.
Since LAU is a non-profit institution it spends exactly what it brings in. Thus in any given year, tuition makes up anywhere from 70 to 80 percent of the university’s revenues. However, unlike many other schools, tuition hikes have tailed behind increases in the university’s turnover (see table). The result is that LAU, traditionally seen as Lebanon’s most expensive university, now actually charges less on average than its main competitor, the American University of Beirut (AUB).
The difference, according to Jabbra, has come from a strategic decision to steer revenue growth away from higher fees and to concentrate on the fundraising element, something the university has had some success with. In 2005 the university set out to raise $40 million in five years. “People said you could not raise any money,” said Jabbra. Over a period of four years LAU had managed to raise some $67.1 million and is now in the “quiet phase” of their next five-year funding spree, which aims to raise another $50 million to support capital spending plans of $240 million over the same period, according to Jabbra. The president’s target for the university’s endowment in the next four years is $500 million. What is also worthy of note is that this increase in revenue comes at a time when the university is also expanding its operations and programs.

Acquiring a medical program
In 2009 the university started its medical program after acquiring the Rizk Hospital, something that took a considerable amount of back and forth between the board and the president’s office.
“When we wanted to establish the medical school the board said ‘you will not have a hospital.’ They didn’t want the hospital to become an albatross on the neck of the institution,” said Jabbra. Eventually, he says, the board acquiesced after affiliation agreements with other hospitals fell through and on condition that they would have control over the finances. Jabbra revealed to Executive that the university acquired the hospital, now called University Medical Center-Rizk Hospital, for a previously undisclosed amount of $47.5 million through Medical Care Holding, in which LAU has a controlling stake. He also revealed that the university is planning to put up another $47.5 million to meet its expansion plans for the hospital after it completes a restructuring of the facilities.
“The hospital was controlled by one person and was French-based,” says Jabbra. “First we had to make it controlled by systems, and second, make sure that the doctors, nurses and staff were introduced to English, so taught them free of charge.” Plans include a new radiology center and a new operating theatre.

Gaining recognition
Another program that has recently reached fruition is having the university accredited by an American education board, something that cost them almost $1.5 million.
“The raison d’etre was not: because AUB has it we have to have it,” he says. “If it makes us a better competitor to AUB then so be it. But you can’t improve unless you have someone telling you what you are doing here is wrong, or what you are doing is absolutely terrific.”
Even with accreditation now in tow, LAU has not yet reached the research capacity of its main competitor, which claims it produces more research in terms of publications and papers than any other institution in the Arab world. Jabbra acknowledges that LAU has a ways to go but explains the reason behind it is somewhat historical. “For a long time we were a college. The main function of a college was to teach,” he says. LAU changed from a college to a university in 1994 when it started offering graduate degrees. Before that decision LAU was known as the Beirut University College.
To address this the university started to transition its teaching load for assistant professors and above in 2005, from four courses per semester to three courses per semester. “Doing research takes time, training faculty takes time. It costs money as you need to give faculty release time,” Jabbra says.

Higher education shortfalls
Another area where LAU falls behind its main competitor is number of graduate students they maintain. At present 9.3 percent of LAU’s student body is comprised of graduate students, while AUB’s comes in at 24.4 percent. Jabbra says that he advises most parents to tell their children to get their undergrad in Lebanon and go abroad for a graduate degree. “Not everyone can travel, because it costs a lot of money,” Jabbra says. He also denies that the university is ignoring its graduate program, insisting that it focuses on a selected few areas such as its doctorate program in pharmacy, the only such program outside the United States that is accredited by the Chicago-based Accreditation Council for Pharmacy Education.
LAU’s recent rise has not been without indecent however. In the past several years, two physical altercations caused by political and sectarian tensions have occurred, with the latest in the last academic year as tensions in the country rose over the ongoing unrest in Syria. LAU’s response was to provide counseling to the students instead of showing them the door, and 18 out of 19 students were eventually re-admitted. “It happened again and we did the same thing. We said to the Shia students, we are going to place you with Sunni communities, and we said to the Sunnis we will put you with Shia communities,” Jabbra says.

Looking ahead
Next year, Jabbra estimates that the university’s budget will hit $138 million, a rise of some 23 percent. That would be more than double the trend in recent years; this ambitious target could well be achieved, as long as Lebanon can coast through the conflict next door.
However, whether he expects incidents on LAU campus to occur with more frequency as the situation in Syria escalates, Jabbra gives an answer that seems to be on the lips of most businesses in Lebanon today: “I don’t know.”

This article was first published in Executive magazine’s July 2012 Lebanon issue

Gather as they may, peace activists are becoming a rare breed in Lebanon (Photo: Executive/Sam Tarling)

In most nations civilian rule of the army is hallowed political ground; it ensures that the power of the gun cannot be used to overcome that of the ballot box. Yet in a country such as ours, where the army is neutered by the executive, our parliament holds virtually no power to implement the laws it rarely passes, citizens are detained and released on a whim from a zaim while those convicted of working for Israel are set free, the prospect of independent decision making by the army would seem ideal.

As the Syrian situation spills over into Lebanon this summer (and probably the next), the issue of whether the army should act to preserve the ‘interests of national security’ without the meddling of politicians will likely come up again and again. Our official policy of ‘disassociation’ from that conflict is an obvious self defense mechanism that has, until recently, served the country relatively well (considering the alternative of getting caught up in what is probably already a civil war).

But disassociation cannot be an exclusive concept; rather it need be an inclusive one. It must extend to internal actors on both sides that would use Syria as the fire to fuel their extremist interests if it is to have any chance of effectiveness in the months (and perhaps years) that we will have to deal with trouble across the border. Instead of retreating to the barracks when fighting breaks out, the military must act as it is legally mandated to and ‘disassociate’ itself from those who would see us dragged into the sectarian strife  across the border.

Yet a rush to the militarization of decision-making sets a dangerous precedent that we need consider before we call for the army to set itself to purpose. The history of nations, including ours, is rife with examples of how a rush to ‘preserve the republic’ leads to an oppressive military state, something that will not provide an answer to the problems ailing the country.

Take for example of how military men cannot be counted upon to uphold civil rights. Our presidents that ascended from the ranks and file have done practically nothing to keep their oath to uphold the constitution, as it is breached almost as a matter of habit by the governments they preside over. Those ex-commanders who are regarded as pallbearers of the state, such as former president Fouad Chehab, can easily be singled out for creating the conditions (such as discrimination against Palestinians) that led to the civil war itself.

Yet every so often those chief consensus commanders do serve a purpose. President Suleiman’s call for a resumption of National Dialogue to deal with the issue of arms, and specifically (but not exclusively) those of the resistance, represents a tilt toward reform. But it is still early days.

We should not forget that by the end of the last National Dialogue sessions in 2010, the country was rife with jokes about what a sham the whole affair was, precisely because Hezbollah rejected the issue of a national defense strategy that encapsulated its arms. But now that Syria could go either way, or no way at all, Hezbollah seems ready to hedge its bets, otherwise Suleiman would not have announced his plea.

And since the last dialogue sessions it has become blatantly obvious that the political class in Lebanon cannot deal with the everyday issues that plague the country because of their obsession with the issue of weapons, as if they are the reason the lights go out or outbound planes are filled with our brightest young minds.

So amidst all that we are faced with today, the convergence of both internal and external factors presents us with a rare opportunity to overcome the hurdle of arms that has divided us. Any attempts to set preconditions by the opposition are merely play for time, something we are running out of fast. If the army can do its job without overstepping its boundaries and the resistance is truly genuine in its commitment to real dialogue, the Arab uprisings could, perhaps, finally have reached our shores.

The only other option is to continue to slip into an increasingly sectarian conflict, and we all know what happened the last time we tried that.

This article first appeared in Executive’s June 2012 Lebanon print edition