Carnegie Endowment for International Peace

A House Divided
Author(s): Adam Zagorin
Source: Foreign Policy, No. 48 (Autumn, 1982), pp. 111-121
Published by: Carnegie Endowment for International Peace
Stable URL: http://www.jstor.org/stable/1148269
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A HOUSE DIVIDED
by Adam Zagorin

Israel swept into Lebanon in June 1982 an-

nouncing the creation of a 25-mile buffer zone
between itself and the Palestine Liberation Or-
ganization (PLO).Soon, however, this objective
gave way to more ambitious goals as Israel
talked of removing Syria and the PLOfrom all
of Lebanon and rebuilding its central govern-
ment. Israel would then withdraw, leaving be-
hind a strong state apparatus to keep the peace
and block any PLOreturn. A large-scale Israeli
police operation thus evolved into an exercise in
state building.
But exactly how Lebanon will be rebuilt re-
mains uncertain. Under the umbrella of sup-
port for a central government and Lebanon's
1943 National Pact (Mithaqal-Watani), Israel
has given the right-wing Christians free rein,
fostered a limited Moslem Shi'ite build-up in
the south, and expanded Christian militia
leader Major Saad Haddad's zone along the Is-
raeli border. In this framework the central gov-
ernment is supposed to run things-much as it
did before the civil war broke out in 1975.
But even without Syrian and PLOinterfer-
ence the task of re-establishing central author-
ity presents daunting problems. For such an
undertaking will require that the warring
Lebanese factions lay down their arms in favor
of a strong national government, a result the
changes wrought by seven years of civil war
may have blocked forever. A unified, centrally
controlled Lebanon may no longer be possible.
For Lebanon was politically divided long be-
fore the 1958conflict, in which internal divisions
reached the point that outside intervention by
U.S. troops was necessary. In the wake of that
interventionnationalunity still seemed possible.
Since the 1975 outbreak of fighting, how-
ever, the long-running indigenous disputes have
developed into deep economic fissures as well.
The transformationis crucial, because all Leb-

ADAMZAGORIN, a Beirutcorrespondent
for Time mag-
azine, 1980-1981, is now basedin New York City.
111.
anese factions have used the last seven years of
war to conduct profitable illegal activities and
build para-fiscal institutions that will now be
directly threatened by any re-emergence of a
healthy state apparatus. Whatever their polit-
ical differences-and there are many-the vari-
ous baroniesand patronagenetworks that make
up the country now count for their economic
survival on the existence of a weak and token
central government. This situation has not al-
ways existed but rather emerged after 1975,
when Lebanon's economic geography increas-
ingly began to mirrorthe nation's political frag-
mentation.
In the months following the 1975-1976 fight-
ing, Lebanon's war-recovery growth reached
an impressive 67 per cent through 1977. Then,
during the violence that culminated in Israel's
1978 incursion into southern Lebanon, growth
slipped, showing gains of between 1.5 and 3
per cent for 1979, 1980, and 1981, with infla-
tion rising to about 23 per cent.1 In other
words, despite all the fighting and killing that
took place during these years, the Lebanese
fared better than might have been expected.
From reports of outside observers the Lebanese
were nothing if not survivors and good
businessmen. They adapted the nation's com-
merce to the vicissitudes of war.
By 1980, the country's all important balance
of trade had reached a deficit of some $2 billion,
as exports covered only 30 per cent of imports.
Even so, both imports and exports showed a
robust increase that year of 55 and 18.2 per
cent respectively, according to the Beirut
Chamber of Commerce. Moreover, the deficit
was eased by a sizable balance of payments
surplus of roughly $810 million built on the
remittances of Lebanese and Palestinians work-
ing abroad and on so-called political money.
The political funds-estimated by diplomats
to amount to $20-$25 million per month-
came from interested governments in the Arab
world and were used to buy the loyalty of dif-
ferent Lebanese factions.

1TheCentralStatisticalOfficeof theLebanesegovernment
has not beenfully operationalsince the 1975-1976 civil
war. Availabledata on trade,banking,and customsreve-
nues have beendrawnfrom a variety of sources.Other
figuresareconsidered
estimates,althoughconservativeones.
112.
 Zagorin
Economic prosperity was most evident in the
banking sector, where deposits rose an incred-
ible 45.5 per cent in 1981 to some $8 billion.
Since the onset of civil war in 1975, overall
bank deposits actually quadrupled, with 10
new banks opening, bringing the number of
licensed banks to 103. An estimated 44 per cent
of the deposits in these institutions were
foreign, demonstrating remarkableand broad-
based national and international confidence in
the banking system.
In contrast to the overall, favorable statistical
picture, central government finances were in
shambles. For three successive years, 1978
through 1980, the official budget showed a
deficit of roughly 35 per cent. At the end of
1980, according to the Beirut Chamber of
Commerce, public debt stood at well over $1
billion-more than an entire year's govern-
ment expenditure. The figure is misleading in
the sense that the national budget itself is
largely fictitious. "It is a fact," commented a
leading Lebanese investment banker, "that the
budget of Lebanon is an illusion. I don't know
what else you would call it. A good estimate is
that about half the money is never collected and
never spent. It simply does not exist and has
not existed for years. Yet, year after year, you
have this document called the state budget."
A major source of potential government
income- Arab aid-has been slow in coming.
For all the talk of unity and cooperation, Arab
states have lagged behind in their five-year,
$2 billion pledge made at the end of 1979. So
far, less than 20 per cent of this money has been
dispensed. As a result Lebanese government
spending went almost entirely to cover bureau-
cratic salaries, leaving nothing for development
or maintenance of the country's crumbling
infrastructure. Although some Arabs, such as
the Saudis, have been generous, most gave their
monetary support only to non-governmental
political factions, which spent the money on
weapons to kill their fellow Lebanese.
Tax payment ceased almost entirely during
the last seven years of fighting. Without these
revenues, the government led a hand-to-mouth
existence, subsisting on customs receipts,
which themselves declined right up to the time
of Israel's invasion. The drop in customs reve-
113.
nues was directly attributable to smuggling
through the illegal ports maintained by nearly
all non-governmental factions. To keep itself
afloat, the state relied on profits from large
central bank currency placements on the Euro-
markets as well as on heavy short-term bor-
rowing. The value of the inflation-battered
Lebanese pound was sustained by the coun-
try's enormous gold reserves. The pound's de-
clared value was pegged to the old official gold
price of $35 an ounce, while the actual cover-
age, including central bank foreign currency
holdings, was valued at several times the
amount of cash in circulation.
This contrast between the country's overall
economic strength and its fiscal woes demon-
strates the extraordinarydifficulty any attempt
to resurrect the central government will con-
front. With the exception of gold, the govern-
ment has no economic base left. Moreover, any
move to rebuild a firm fiscal structure will
require renewed taxation and a revival of
customs revenues- steps entirely antithetical
to the economic functioning of Lebanon's para-
state political parties. They will find ways to
resist.

Illegal Incomes
Compensating for the sickly condition of
government finances has been the robust health
of Lebanon's other economy. Indeed, numer-
ous illegal activities have long played a far from
trivial role in the nation's economic life. Before
Israel's invasion brought most activities to a
standstill, domestic employment was estimated
at around 300,000 by a central bank economist.
The same expert guessed that about 100,000
jobs were located in what he called the "in-
formal"sector. These figures may overstate the
case, but not by a great deal.
The jobs were divided into five primary
sources of illegal income-all of which would
have to be curtailed or snuffed out if a central
government were to regain control. The first
was the political money provided by the num-
erous foreign governments that supported local
political parties. This money totalled approxi-
mately $300 million a year according to one
estimate-about one-quarter of the official
state budget-and entered the economy
114.
 Zagorin
through the 17 foreign intelligence services and
40-odd militias operating in the country. The
funds were used not only to buy arms, but also
to support the militias' social welfare networks.
Much of the money came from Syria, Libya,
and Iraq, each of which had client armies. The
Saudis donated large sums to almost all parties
at one time or another. The United States
openly provided about $100 million to the
Christian-dominated Lebanese National
Army, although U.S. funds should not be con-
sidered part of the "black economy."
The second major economic actor was the
PLO.Apart from some 15,000 armed guerrillas,
the organization had another 6,500 full-time
workers in its industrial enterprises and 4,000
part-time staff. It was one of Lebanon's largest
employers, what the ChristianScienceMonitor
described as a sort of "PLOInc." The PLO's
commercial sector existed under the umbrella
of Samed, an Arabic word meaning steadfast-
ness. Its activities began in 1969 in a Jordanian
refugee camp and expanded to include the
production of religious articles, hand-embroi-
dered dresses, kitchen utensils, safari suits,
Louis XV chairs, high-heeled shoes, shoulder
bags, lace tablecloths, butter, poultry, and
candy.
Only about 30 per cent of total PLO ex-
penditures actually went for military purposes,
according to Palestinian sources. The organ-
ization also ran 100 schools, a radio station, a
daily newspaper, several magazines, a 60,000-
volume research center, 8 hospitals, and a
garbage collection service-all within the sov-
ereign Lebanese state. The PLO also main-
tained 108 diplomatic missions abroad. All
these operations formed only a part of the PLO
budget, which drew on income from Wall
Street investments, the American money
markets, and other diverse sources. The whole
PLObudget--controlled for the most part by a
now defunct bureaucracy in Beirut-was un-
doubtedly larger than that of most small coun-
tries and certainly larger than Lebanon's.
The legal basis of PLOactivity in Lebanon
was the Cairo agreement of 1969. This long-
ignored document stated that the Fedayeen
were supposed to remain in their camps. But
the PLO stopped recognizing it and became the
115.
largest of Lebanon's states within the state.
Only after the current Israeli invasion did the
organization offer to restrict its activity to the
camps, but the prior record of observing simi-
lar pledges was not a good one.
Now that the PLO has been neutralized,
thousands of Palestinian civilians will be
stranded in Lebanon without effective leader-
ship. Considering the ill will their presence has
already engendered, it is more than likely that
the surrounding Lebanese factions will begin to
prey upon them-much as the PLOunits once
preyed upon the Lebanese. Unexpelled mili-
tants may well be recruited by indigenous
leftist forces, who originally invited PLOsup-
port to buttress their position against rightist
Christian domination. Overall, destruction of
the PLOmini-state and para-fiscal institutions
will weaken the Moslem left, opening the door
to increased attempts by rightist elements to
gain ascendance.
A unified, centrally controlled
Lebanon may no longer be pos-
sible.

The third major area of illegal income was

the hashish trade. Some three-quarters of
Lebanon's fertile Bekaa valley was planted in
the crop every year, with perhaps 5,000 acres
devoted to opium cultivation. Most of the
crop was exported to Egypt and Western Eu-
rope, with the 1981 crop valued at about $1
billion. Landholders and local peasants earned
small incomes from participation in the yearly
planting and harvest. The real profit makers,
according to Beirut's leftist newspaper, As-
Safir, were "certainmembers of parliamentand
various influential personalities." In addition to
these profiteers, the Syrian army was also
deeply involved in the hashish trade, and much
of the finished product was shipped across the
Syrian-Lebanese border prior to re-exporta-
tion. As such, the narcotics traffic directly sub-
sidized not only the 25,000-strong Syrian
peace-keeping force stationed in Beirut and the
Bekaa, but also most of the other political par-
ties through whose territory the drug passed
before it was shipped overseas.
Smuggling was the fourth majorillegal activ-
116.
 Zagorin
ity and the one most responsible for impover-
ishing the state. In the first half of 1981,
customs levies dropped about 40 per cent,
which amounted to slightly less than $500 mil-
lion annually, according to the best estimates.
Yet this amount accounted for only a small
portion of all illegal revenues. The money went
to political parties controlling illegal ports
along the coast. Apart from diminishing state
revenues, this activity also did significant dam-
age to Lebanese industries that were not pro-
tected against competition from cheap foreign
imports. In practice, the country has no tariff
barriers whatever.
The final majorsource of income for political
parties in Lebanon was and, in the case of the
Christian Phalange, remains illegal taxation. It
is ironic that the Phalange, which the Israelis
support in their efforts to revive sovereign Leb-
anon, has used this revenue-raising device
more systematically than any other group. All
functions of government in the principal Mar-
onite Christian region have been taken over by
what is known as "Bashir's country," named
after the Lebanese Front militia leader and
presidential candidate, Bashir Gemayel. The
mini-state operates an efficient and ruthless po-
lice force, has its own well-equipped and Israeli-
trained army, and runs a highly developed
system of taxation to support these activities.
Aided by a multimillion dollar computer
center, the Phalange illegally takes a percentage
of movie tickets, restaurant checks, and gas-
oline sales. It receives business, property, and
renters'taxes as well. This well-designed struc-
ture allows the Phalange to draw a large major-
ity of its financial resources from within the
boundaries of the mini-state, giving the party
an independence it would lose under a fully
functioning central government.
Taxation in leftist- and Palestinian-
controlled areas was far less organized. Shop
owners were often required to make regular
payments and usually complied out of fear, if
not out of sympathy. Another common fea-
ture, at least in West Beirut, was the sale of
party newspapers and magazines to store-
keepers. A young man would enter a shop car-
rying a stack of party propaganda and, often
without speaking a word, drop it on the
117.
counter and receive a small sum in return. Most
of the militias and parties repeated this proce-
dure on a weekly and often more frequent
basis.
It is not unreasonable to estimate the annual
value of Lebanon's black economy at some $3
billion. The figure is a conservative approxima-
tion and amounts to far more than actual gov-
ernment spending and a significant portion of
the gross national product. The size of this
economy indicates the extent to which the par-
ticipants in Lebanon's civil war have cloaked
their personal rivalries and greed in the high-
blown rhetoric of reactionary and revolution-
ary dogma. This was true of the right-wing
Christians, who made millions during the war,
of leftist militia leaders, who exacted their
tribute, of Syrian army hashish runners in the
Bekaa, and of the PLO,which hid itself among
civilians and usurped the Lebanese.
In the months prior to the Israeli invasion,
for example, much of the fighting in Lebanon
did not pit Moslems against Christians but var-
ious leftist factions against one another. In the
course of announcing a clean-up operation in
West Beirut last December, the leader of a left-
ist security committee admitted that "99 per
cent of the interparty clashes that have oc-
curred in nationalist [non-Christian] areas were
sparked by private fights." This startling state-
ment, published in a Beirut English-language
magazine, is an indication of the war's char-
acter and applies to Christian groups as well.
Now, by neutralizing Syria and the PLO,the
Israeli invasion has refocused attention on
the intra-Lebaneseconflict. In this context, the
Phalange has emerged as the paramount local
force. Yet it stands to lose its independent para-
state and fiscal structure if U.S. and Israeli
plans to revive the central government succeed.
The Phalange will therefore most likely at-
tempt to control such a government and refuse
to disarm. If it does, the rest of the country will
resist disarmament as well.
As things stand now, Gemayel has already
declared himself a candidate for president. Al-
though some delay is likely, parliament is
legally required to elect a successor to Lebanese
President Elias Sarkis by September 15, 1982.
Under the seemingly innocuous slogan of
118.
 Zagorin
Lebanon for the Lebanese, Gemayel has
tried to project an image of evenhandedness,
even though he has Israeli backing and led
rightist forces against the Palestinians and their
Moslem leftist allies during the 1975-1976 civil
war. The problem is that Gemayel's candidacy
appears unacceptable to Moslem leaders, who
must provide support for the two-thirds parlia-
mentary vote needed to elect a president. Other
candidates include Gaby Lahoud, a former
director of military intelligence, and Camille
Chamoun, a former president. If Gemayel de-
cides to press his presidential bid or if Israel's
drive on West Beirut destroys the basis for na-
tional unity, then elections may have to be
postponed, perhaps indefinitely.
An AlternativeTo Chaos
Washington should involve itself in the pro-
cess of rebuilding Lebanon, perhaps through
the good offices of special U.S. envoy Philip
Habib. But the United States must avoid the
danger of advocating strong central govern-
ment for Lebanon more forcefully than the
Lebanese themselves. Considering the appall-
ing human toll caused in part by U.S. weap-
ons, Congress should be generous in giving
aid when the time comes. Good-office efforts
must start with a realization that it is not pos-
sible to return to the 1943 National Pact, which
provides the Christians with six parliamentary
seats for every five the Moslems receive. The
Pact has long ignored that a majority of Leba-
nese are Moslems, and it should be discarded as
the unworkable political formula that it is. The
effort at rebuilding Lebanon will therefore take
some time. A multilateral force sent in to ar-
range the departure of the PLOand Israeli and
Syrian forces probably will have to stay in
place for a long time after the withdrawal of
non-Lebanese forces.
In this context, the economic record stands
out as an important gauge of where the country
is today and what has happened to it over the
last seven years. The war was hell but in its
course grew a well-articulated and now en-
trenched economic system. Since this system is
incompatible with a return to the discredited
1943 National Pact, it will be up to the Leba-
nese to devise a new scheme. As they approach
119.
this task, all parties would do well to recognize
that whatever happens to the PLO,thousands of
Palestinian civilians will remain in Lebanon
until achievement of an overall Middle East
settlement and possibly even longer. While a
general Palestinian exodus would undoubtedly
ease Lebanon's internal tensions, progress
toward a solution cannot await this kind of
political millennium. The parties will have to
consider what practical steps to take now to
eliminate the causes of bloodshed.
One path would be to partition the country,
a position advocated by various Maronite max-
imalists. However, Lebanese Moslems, many
Maronites and other Christians, Syria, other
Arab states, and the superpowers already op-
pose partition. Moreover, such a solution-
entailing the establishment of a Maronite state
almost certainly under Phalange control-
might also prove unworkable. Cut off from the
Arab world and aligned with Israel, such an
entity would almost certainly become econom-
ically isolated and would be viewed as a
political pariah. As moderate Palestinian polit-
ical analyst Walid Khalidi points out, even for
the Maronites "partition is a counsel of
despair."

Any move [by a central govern-

ment] to rebuild a firm fiscal
structure will require ..steps
entirely antithetical to the eco-
nomic functioning of Lebanon's
para-state political parties.

A more practical solution-and one the

United States should support-would be a
cantonal formula that constitutionally legiti-
mated the virtually irreversible economic and
political fragmentation already in existence.
Since all parties have reason to fear a strong
central government, a system of administrative
autonomy under a national umbrella should be
worked out.
Former Lebanese President Suleiman
Franjieh proposed the beginnings of a reform
program in February 1976. As a Christian and
a Maronite, Franjieh was in a good position
to advocate the reapportionment of parliamen-
120.
 Zagorin
tary seats on an equal Moslem-Christian basis,
abandoning the Christian predominance of the
National Pact. Such a balance (tawazun)might
go a long way toward eliminating Moslem fears
of Christian hegemony. Franjieh also proposed
to maintain the present system of allocating the
presidency to a Christian, the prime minister-
ship to a Sunni Moslem, and the parliamentary
speaker'spost to a Shi'ite. Such a system would
preserve Christian prestige and help to allay
fears of Moslem rule. Finally, Franjieh also
called for rebuilding the national army, al-
though that notion appears unrealistic at least
for the time being. Dominated as it is by Chris-
tians, the army cannot now serve as a national
institution.
If the Israeli invasion has indeed opened a
window of opportunity for American diplo-
macy, it is one that must involve restructuring
the Lebanese polity. Painful and time-
consuming as the process may prove, it is not
merely necessary but also provides the only
conceivable justification for the agony through
which the country has passed. As Sarkis noted
in his inaugural address almost six years ago,
on September 23, 1976, "the institutions which
make up the government of Lebanon ... con-
tain nothing that is sacred and that cannot be
touched if we aim to develop them in accord-
ance with the needs of Lebanese society." A
cantonal formula respecting the fears and as-
pirations of all must be devised so that Lebanon
can again live up to its reputation as the Swit-
zerland of the Middle East. If steps in this
direction are not taken, the alternative will be
further chaos, loss of hope, and eventual parti-
tion.

121.