Capitalists in Conflict: The Lebanese Civil War Reconsidered

Key takeaways

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Reading notes

• This article argues, in contrast to much of the extant literature, that the political economy of Lebanon can explain the roots and dynamics of that country’s 1975– 1990 civil war. This reinterpretation examines the tensions and conflicts that arose within the Lebanese financial sector—the commanding heights of the Lebanese political economy—with the onset of petrodollar-driven financial globalization. Through a multi-sited approach, the paper traces and analyzes the rise of and competition between two financial networks within wartime Lebanon: One associated with President Amin Gemayel’s Kata’eb Party; and the other associated with the ascendant Lebanese-Saudi billionaire Rafiq al-Hariri. It was, I show, the embeddedness of these networks within larger processes of globalization and regional competition that set the stage for the financial collapse of 1988– 89. This collapse contributed to the end of the war and enabled Hariri’s domination of Lebanon and its financial sector throughout the 1990s.
• Generations of scholars have tried to define the apex of power in the Lebanese political economy. The most common understanding, which underpins the national mythology, holds that Lebanon is the exceptional product of an energetic and cosmopolitan merchant elite.4 The elite’s ability to maintain sectarian consociationalism and a dynamic liberal economy, the latter made possible by Lebanon’s geographic and cultural role as the gateway between east and west, according to nationalist mythology, enabled the prosperity of the ‘Merchant Republic.’ In the two decades following independence, and despite the brief civil war of 1958, Lebanon’s ‘free market’ economy was hailed as an example to be emulated by the Arab world.5
• By the 1960s, however, the structure of the Lebanese political economy was clearly changing. In 1962, Yusuf Sayegh identified a decided shift in the sectoral balance of power away from the international trade that anchored Lebanon’s reputation
• In short, Lebanon’s emergent oligarchy enriched itself primarily through the aggregation and transfer of regional wealth to Western countries and through the import of ready-made products through their own trading houses, which, in turn, further undercut the possibility of growth in the more labor intensive agricultural and industrial sectors.14 Despite the centrality of the financial oligarchy to Lebanon’s political economy, it rarely appears in analyses of the Lebanese Civil War.
• The domination of the banking sector and related state institutions such as the central bank (the Bank du Liban or BL) by a small number of oligarchs and their allies had long been a source of friction between them and other prominent families, Muslim and Christian alike.
• The increase in oil prices in the early 1970s amplified the frustration of those outside the oligarchy and barred them from forming new banks by existing regulations, even as deposits and assets held by the oligarchs’ institutions exploded.15 Contributing further to their alienation from the existing order was a Central Bank (BL) decision to permit Western banks to open ‘representative offices’ in Beirut through which they channeled funds to their home institutions.
• In 1982, Tamraz became CEO of the Detroit-based Bank of the Commonwealth, of which First Arabian had purchased 77 percent.22 He represented Saudi establishment figures in the formation of the Arabian Sea Oil Corporation, which joined First Arabian shareholders with a consortium of investors and institutions headed by Banque Arabe et Internationale d’Investissement of Paris.23 By the time President Gemayel appointed him to head the Intra Investment Company, Tamraz could market himself as part of the ‘Arab establishment’ and was able to draw into the Kata’eb orbit the resources of powerful networks of capitalists working within and alongside a variety of states.24 Intra’s interests were global, ranging from ownership of local print media to significant stakes in the national air carrier, Middle East Airlines, the Beirut Port Company and even France’s second largest shipyard.
• In terms of the former, Intra controlled a number of companies, including the real estate investment subsidiaries of the Port Company, as well as numerous properties in Lebanon, New York and Paris.25 In terms of the latter, Intra controlled or held shares in a number of local banks, including the Finance Bank (98.54 percent), the Bank of Kuwait and the Arab World (98.54 percent), the semi-governmental Housing Bank (6 percent) and, most importantly, the Banque al-Mashreq (42.17 percent), then a joint venture with the US-based Morgan Guarantee Trust Bank.26 While control of a growing number of banks was central to the Kata’eb strategy, this was not enough.
• As had been the case since the formation of the Lebanese state, these processes reflected the fusion of the economic and political, with Lebanese networks linked to other, similarly constituted networks of capitalists, patrician and royal families, institutions, holding companies and corporations working within and alongside a variety of states within the region and beyond.
• Hariri’s pragmatism, for some, is seen not as a virtue but rather as evidence of a willingness to do the bidding of others in pursuit of his own interest. These critics also have been wary of what they saw as the corrosive influence of Hariri’s money and his importation of business associates and officials drawn from his Mediterranean Group to high office after the war.28 My analysis suggests that Hariri succeeded in the transnational pursuit of power, position and profit just as the oligarchs before him, and just as the Kata’eb was doing at the 27 Al-Iqtisad wal-’Amal, Rafiq al-Hariri: Harb Dod al-Harb [Rafiq al-Hariri: A war Against the War], February 1985, pp.
• Indeed, struggles over the control of oil and petrodollars have long shaped the politics of the Gulf monarchies and their regional alliances.31 With the onset of independence and the rise of economic nationalism, they became bolder in pursuit of a greater proportion of oil profits, while nonoil producing countries in the Arab world made increasingly strident claims against Arab oil producers for a share of their wealth.
• Oil-related interests, as well as larger political interests, have driven US concerns vis-a`-vis the Middle East. By the mid-1960s, official Washington was determined to control the vast sums of dollars flowing to Middle Eastern oil states, as the dollar was central to the 1944 Bretton Woods agreement that established the international monetary regime through which the United States has maintained control over much of the global political economy.32 The challenge became greater just prior to the 1973 war, when OPEC countries sought to renegotiate the division of the petrodollar pie.
• The Saudis also pursued a regional strategy of investment in the banking sectors of nonoil producing Arab countries, essentially creating dependent relations between the non-oil producing countries and the Gulf states.35 The Lebanese banking sector, which, prior to the civil war boasted the largest concentration of banks and financial institutions in the Arab world, was a natural target.36 The push to enter and then to control the Lebanese financial sector was made easier by the Two-Years War and an optimistic drive for post conflict reconstruction.
• It was this ascending confluence of interests and political power—bringing together second-tier Lebanese families, rightist and leftist parties, Keynesian bankers and the Saudi regime—that overrode the oligarchs’ opposition to opening the sector, and made possible increasing Gulf investment in the Lebanese banking sector despite continued violence.
• Rafiq al-Hariri, then Saudi emissary to Lebanon, spearheaded this effort along with the Bin Mahfouz family, whose National Commercial Bank was then Saudi Arabia’s second largest bank.
• After the meeting, they publicly announced their opposition to the Credit Libanais deal, arguing that the way the negotiations and sale had been carried out and the conflict that arose in its wake undermined the confidence of foreign, especially Gulf Arab investors, in the economy in general and the banking sector in particular.44 As his relations with Gemayel deteriorated, Hariri focused upon developing his own networks of patronage and power.
• Geagea forced Gemayel into exile and then turned against Aoun in what became known as the ‘War Between Brothers’ for control of East Beirut and, importantly, Tamraz’s financial network, which by that time had grown to control fully a quarter of all banking activity in Lebanon.57 The political ground in Beirut was not all that was shaking, however.
• The Lebanese Civil War Reconsidered 153 Lebanese clients of al-Mashreq or its subsidiaries.58 Why Na’im took such a step remains open to debate, given that it ensured overseas regulators would scrutinize Lebanese banks and their subsidiaries abroad.
• The collapse of MEBCO then contributed to the collapse of its parent, Jordan’s second largest bank, Petra, as well as its Washington DC subsidiary, Petra International.62 Lebanese Forces-related banks too came under scrutiny, resulting in the closure of United Banking Corporation (UBC), owned by the Keirouz Group, which led to further problems as Euromed, Prosperity Bank and Credit Populaire suffered mounting difficulties.63 Faced with the possible collapse of the entire banking sector and following consultations with the United States, the Central Bank instituted a massive bailout, the true scale of which probably will never be known.64 It is within the context of this perfect storm of political paralysis and local, regional and global financial meltdown that the Ta’if process began.
• The most important position, Association President, went to Hariri’s business partner and head of CCF-Moyen Orient, George Ashi.67 Three days later, Hariri-owned jets flew Lebanese parliamentarians living abroad back to Lebanon, where they ratified the Ta’if Accord.68 Shortly thereafter, Hariri’s network made gains within the main public institution of the banking sector, the Banque du Liban.

Conclusion

• Yet, to date, among the vast and valuable literature on the Lebanese Civil War and its aftermath, little has been said about the roles that the financial sector played during the conflict, or how those roles were made possible by the assemblage of scale-jumping strategies that linked the Lebanese wars to regional and global competition—competition which often is depoliticized and simply called ‘globalization’—between similarly constituted networks for power and position. A reconsideration of the Lebanese Civil War that replaces the political or the sectarian with more nuanced examinations of how the political and the economic in fact are fused brings this world of dynamic relations squarely into view, and our understanding of the Lebanese war as a politico-economic conflict brings research on Lebanon’s tragic experience more in line with developing scholarship on late twentieth-century civil conflicts.