Lebanon has, for decades, been one of the world’s leading experiments in extreme libertarianism, illustrating what happens to a society with little to no government regulation or social protection. This toxic mix has been exacerbated by the “Washington Consensus,” the basket of economic policy ideas—especially austerity and privatization—that Western powers have foisted on countries in need of aid and loans.

Sadly for Lebanon’s residents, they are now serving as human subjects in a cruel experiment about how these neoliberal economic theories can manage a global pandemic. The laissez-faire economics championed by the Washington Consensus since the 1980s holds that the private sector is almost always more efficient than the government, and suggests withdrawing as many services as possible from the public sector. It also calls for deregulation: in time, the thinking goes, thriving markets will mostly regulate themselves, through the magic of competition.

Lebanon’s love affair with these ideas has been almost total, and sectors that have not been fully privatized, like electricity or education, are insolvent, barely functional, or both. Public health care faces continued budget cuts as the state continues to rely on its for-profit alternatives. Even worse, in a grim exception to the Washington Consensus prescription, Lebanon does have a sizable public budget—but nearly all of it goes to patronage, rather than anything approximating public services or traditional state functions.

Now, the COVID-19 pandemic has further exposed the colossal chasms in Lebanon’s health system. The country’s corrupt ruling class has, over the years, dismantled this system—under the approving eye of international aid agencies, which have praised Lebanon every time a state service has been cut. And the pandemic comes on the heels of other crises, making it even more dangerous. After suffering for decades under the rule of sectarian bosses and warlords and business magnates, who thrived while the state contracted, Lebanon has been rocked by multiple shocks over the last six months. A financial collapse last fall left an already impoverished populace struggling for the basics of survival.

The deadly crisis unfolding in Lebanon suggests that it is time for donor countries to rethink their tired formula of privatizing social services.

The deadly crisis unfolding in Lebanon suggests that it is time for donor countries to rethink their tired formula of privatizing social services like health care and pushing government austerity even when it causes massive human harm. The austerity experiment conducted on Lebanon is an extreme version of a formula applied widely around the world—by donor countries on dependent ones, and even by rich countries on their own vulnerable populations. Cutting services and starving the state does not create new efficiencies—many economists have, in recent years, effectively discredited the theoretical underpinnings of the neoliberal project. But Lebanon’s case provides real-world evidence of its dangerous shortcomings: following the ardent advice of influential Washington Consensus economists—for privatization, austerity, and reliance on laissez-faire economics—creates a dystopia.

Donor countries and their beneficiaries must finally abandon this discredited formula. It is time to learn from previous mistakes, and invest in public goods provided by the welfare state, with international support.

Lebanon’s Patchwork COVID-19 Response

The COVID-19 pandemic couldn’t come at a worse time for Lebanon’s public health care sector. Already extremely limited in resources and spending, it was hit with a 7 percent budget cut this year, as Lebanon implemented austerity measures in response to the recent financial crisis. While the Ministry of Public Health’s Epidemiological Surveillance Program narrowly avoided an originally planned budget cut, there have been other cuts to spending on the provision of medicine and laboratory equipment.

The government-run Rafik Hariri University Hospital has been left to bear the brunt of the situation since the first case in Lebanon was confirmed on February 21. The underfunded hospital’s staff, working around the clock, have been waiting for unpaid salaries and the implementation of a public sector wage hike that was passed almost three years ago. They routinely protest, though medical workers have stopped doing so in the interest of tending to their patients. The government has only paid 40 percent of the budget allocated to the hospital for 2019, and none yet for 2020.

At the time of writing, Lebanon had more than 630 documented cases of COVID-19, 20 deaths, and 50 recoveries. (As in other conutries, the true number of cases is likely much higher; testing in Lebanon has been limited.)

Like other public services in Lebanon, whether provided minimally or insufficiently, there is an overreliance on for-profit hospitals and services in the health sector. Private facilities make up more than 80 percent of the sector, and include the largest and best-equipped hospitals. However, despite their greater capital and resources, these private facilities have taken an extremely cautious approach to the viral outbreak.

At first, some private hospitals offered testing, though tests were not free and were mostly limited to people with physical symptoms. Positive cases would then be transferred to the Rafik Hariri University Hospital for treatment.

As Lebanon’s epidemic progressed, some private hospitals chose to take in COVID-19 patients, but allocated only 20 beds for them, according to Suleiman Haroun, the head of the private hospitals’ syndicate. The Rafik Hariri University Hospital, in contrast, has 140 beds allocated for COVID-19 patients—just over a quarter of its total capacity.

While Haroun said that the syndicate was imposing these limits to maintain the safety of other patients, it is impossible to ignore that treating COVID-19 patients is likely bad for revenue. A hospital that takes in COVID-19 patients will drive out other potential patients—for a private hospital, its customers—who fear that they, too, will be infected. Ordinary people and medical workers alike have criticized the syndicate’s extreme limitations on the number of beds allocated to COVID-19 patients. Firass Abiad, the doctor who heads the Rafik Hariri University Hospital, has been especially critical of the private sector’s limited response.

In April, a month and a half since the first COVID-19 case was confirmed in Lebanon, the country’s private insurance companies announced they would cover treatment for the virus for their subscribers. A positive development, to be sure. However, the benefit of this coverage to Lebanon’s most vulnerable is limited: almost 1.8 million Lebanese citizens—more than a quarter of the country—are uninsured, and soaring unemployment keeps private insurance totally out of reach for most.

Setting aside worsening socioeconomic conditions, Lebanon has been holding on relatively well in the short term. But in the medium to long term, the prospects of success are dim for a patchwork response to COVID-19—a response that has no foundation in systematic social spending and service provision.

The scale of the government’s response remains unclear, and the timeline of its strategy is murky. On March 12, three weeks after the first confirmed Lebanese case of COVID-19 was announced, public health minister Hamad Hassan announced that an additional eight public hospitals were being prepared to take in COVID-19 patients. On March 30, Hassan said there would be ten government-run hospitals countrywide that would be readily available by the end of April. On April 7, the Ministry said 810 beds would be allocated nationwide, with 234 of them designated for critical cases by April 10. These promises may sound impressive for a country of Lebanon’s size, but it is hard to know if they reflect reality. Public health researcher Fatima Al-Sayah has said that the real number of hospital beds allocated for COVID-19 cases in Lebanon actually falls far short of meeting even 10 percent of likely demand—a level that the government has said it will meet.

Health experts have had mixed assessment of the amount of testing carried out in Lebanon. Testing, of course, is widely considered a crucial element of an effective response to the pandemic. South Korea, which has run one of the most successful campaigns to repress the virus so far, administered some 15,000 free tests daily at the height of its outbreak. Lebanon, about a tenth the size of South Korea, is currently conducting somewhere between 500 and 1,000 tests a day, a number that some experts have said needs to be higher. Abiad, the head of the Rafik Hariri University Hospital, has tweeted that the number ought to be 2,500, and must cover refugee camps and rural areas. The United States—not noted for an aggressive and effective response to the virus—is currently testing at about twice Lebanon’s daily per capita rate.

The testing levels in Lebanon are thus better than nothing, but far from adequate, which does not bode well for the Lebanese state’s laissez-faire approach to the health sector: to avert calamity with its weakened public hospitals and profit-driven private network, Lebanon would at least need good testing. The low testing rate is especially worrisome considering Lebanon’s vulnerable and disenfranchised populations, such as migrant workers, 250,000 of which work in private households, and a Syrian refugee population of which a little over 910,000 are registered with the UN High Commissioner for Refugees. Hasan has admitted that some hospitals have discriminated against Syrian nationals. Many refugees—especially undocumented ones—fear deportation if they go to get tested. Meanwhile, the underfunded United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) is struggling to implement the necessary measures to prevent COVID-19 from overrunning Lebanon’s Palestinian refugee camps.

And as Lebanon’s already battered economy continues to worsen, funding becomes another obstacle, especially as the private sector does not step in to alleviate the situation.

This is where the country’s ruling political parties and leaders fill in the gap left by the state. In addition to providing municipal sanitization efforts, medical and food aid distribution, and testing, they have donated money to help rehabilitate public hospitals in their constituencies or support capacity at the Rafik Hariri University Hospital. Druze leader Walid Jumblatt pledged some $600,000, while billionaire former premiers Saad Hariri and Najib Mikati donated about $30,000 each for facilities in their key constituencies in northern Lebanon. In addition, parties like the Lebanese Forces, the Free Patriotic Movement, and Hezbollah arranged sophisticated efforts, recruiting thousands of volunteers among them, including medical professionals.

Bonded by International Aid

If Lebanon’s public health care system is a patient on life support, then international donors are the ventilator.

France has donated 500 kilograms of basic medical gear—including protective suits, gloves, and thermometers—while UNICEF (the United Nations Children’s Fund) has donated hundreds of thousands of gloves, respirator and surgical masks, and medical gowns to public hospitals across Lebanon.

On a more systematic scale, international governmental and nongovernmental organizations have continued to play a crucial role in financing different public institutions in Lebanon, as the state pulls back on public spending. Of course, social spending in Lebanon has always been low, and much of the country’s public sector bloat is due to excessive hiring in exchange for political loyalty and votes.

Nevertheless, international organizations, especially the World Bank, have played a key role in financing Lebanon’s public health sector. In 2017, the World Bank launched the Lebanon Health Resilience Project, allocating $120 million in grants and soft loans over a six-year period to rehabilitate and scale up health services. The following day, another $30 million was earmarked for the project. According to the project’s page, Lebanon has yet to achieve any key milestones, and its progress has been “moderately unsatisfactory” as of January 2020.

The Ministry of Public Health said on March 12 that it has been trying to convince the World Bank to reallocate $39 million from that project’s budget to Lebanon’s COVID-19 response, including testing kits and ventilators for public hospitals. However, it wasn’t until April 2 that the World Bank did so, moments after the cabinet approved a $617 million loan to build a controversial dam.

The scramble for funding and the misplaced priorities are only a microcosm of the relationship between Lebanon’s public sector with the state and international organizations.

Factor in Lebanon’s fiscal crisis and massive debts, and it is evident that service-providing public institutions, especially health care, are in need of whatever capital they can get.

Since October, Lebanon has been facing a severe import crisis of essential goods—including life-saving medicines and health care equipment—due to a shortage in U.S. dollars, the hemorrhaging of the Banque du Liban (the central bank), and commercial banks hoarding whatever foreign currency they have. Setting aside shortages in masks, gloves, and other basic protective gear, it appears that importers are positioned to bring in only 10 percent of what hospitals have demanded in equipment.

But even in the unlikely event of the Lebanese state wanting to increase social spending, related to health care or otherwise, it would be unable to do so. Desperate for money, Lebanon has been scrambling to unlock $11.1 billion in soft loans and grants from various states and international organizations for major infrastructure projects, pledged at the Lebanon-focused 2018 CEDRE conference in Paris. The conditions for receiving the loans are drawn from a tired neoliberal grab bag: restructure and reform the economy, by cutting government spending and expanding the role of the private sector and the market.

In a meeting on April 6, Lebanon asked the UN-led International Support Group for Lebanon for aid. While looking into a funding appeal to support refugee communities the state has been unable to reach, the UN-led group reiterated that aid could only be delivered if Lebanon implemented the reforms promised at the CEDRE conference.

Lebanon has also requested aid from the International Monetary Fund (IMF) to be allocated from the organization’s $100 billion fund for the COVID-19 outbreak—so far, to no avail.

The Washington Consensus Is Not the Cure

The United States has the largest voting powers in the IMF and the World Bank’s International Bank for Reconstruction and Development, and its imposition of neoliberal reforms is proving detrimental to Lebanon. Even when these reforms include anticorruption legislation and target political clientelism, they do more harm than good, because of how they also weaken the public sector.

Lebanon’s recent history shows that neoliberal policies at the expense of social spending and market regulation are a recipe for disaster. In the 1990s, after the end of the Lebanese Civil War, the country pursued a reconstruction effort that was ultimately unsuccessful but which privatized many public functions in a manner that enriched the political elite. A privately held company took control of rebuilding Beirut’s heavily damaged downtown district. An unaccountable government agency was given responsibility for infrastructure reconstruction projects, answering only to the prime minister with no oversight from other ministries. As these for-profit ventures advanced, there was a complete absence of viable state services and institutions, laying the foundation for Lebanon’s chronic overreliance on the private sector.

Lebanon’s recent history shows that neoliberal policies at the expense of social spending and market regulation are a recipe for disaster.

After reconstruction, the clientelistic and political patronage networks were fortified in exchange for votes and political loyalty. Such networks ran the length of the political spectrum, whether it was the charity of former prime minister Rafik Hariri and the Future Movement, or the institutionalized provision of social services by Hezbollah.

The viral pandemic reveals more about why the Washington Consensus is not the cure for Lebanon, nor the panacea for ailing economies worldwide.

Unsurprisingly, further cuts on state and social spending—minimal as they already are—have reinvigorated political patronage networks during the COVID-19 pandemic. The cuts have also shown the futility of relying on a private sector, which—even in the midst of a global pandemic—puts profit before everything else.

Lebanon’s cuts to its already minimal provision of health and other social services have made these services even less viable than they already were. If donor countries, such as the United States, are interested in the revival of the Lebanese economy and improving living conditions in Lebanon, then a new approach is needed.

Instead of cutting state spending, a more sensible policy would be to reallocate wasteful spending to social services. At a time of soaring unemployment and a near 50 percent devaluation of the Lebanese pound, people need viable tax-funded education, health care, and social security—more than ever before. Not only should such services be rehabilitated and improved, but their coverage should also be expanded. Cutting what’s left of Lebanon’s minimal social spending is rubbing salt in the wounds of the country’s working class, as well as those of its shrinking middle class.

Of course, given the lack of capital—a problem that, with the pandemic, now menaces emerging markets everywhere—it is crucial that the Lebanese economy becomes productive and viable again. Nearly three decades of policies built on real estate, banking, and luxury service provision have left the country in a weak position.

However, as Lebanon experienced in the 1990s, economic growth at the expense of the socioeconomic well-being of the majority of the population does not create a viable economy. As Lebanon’s experience so painfully shows, any resulting short-term boost to GDP is simply not worth it: quality education and health care are privileges, and power remains in the hands of a cluster of warlords and business magnates. With the pandemic now menacing the country, the full costs of Lebanon’s experiment in neoliberalism and corruption will become apparent. If policymakers respond competently—and it is uncertain they will—the pandemic ought to be the turning point for a dark chapter in the country’s history, and pave the way for equitable economic reform.

This commentary is a part of “The Future of Governance in Eroded States: Managing Fragmentation and Its Consequences in the Middle East,” a multi-year TCF initiative supported by the Carnegie Corporation of New York.

Hezbollah medical workers stand in front of ambulances during a demonstration by Hezbollah showing what the organization is doing to help in the fight against the COVID-19 outbreak on March 31, 2020 in Beirut. Source: Daniel Carde/Getty Images