E. Determinants of and Policies Bearing on the Standard of Living

The Lebanese experience in the last three decades demonstrates that there is a direct and close link between economic growth, on the one hand, and improvement in the standard of living and alleviation of poverty, on the other. Though necessary, growth by itself is not sufficient to alleviate poverty. This can be seen in the periods 1971-1974 and 1992-1994. These periods were characterized by high growth rates, but without reducing the spread of poverty. A close correlation can also be observed between poverty and unemployment, which means the loss of the main, and often the only, source of livelihood. This is especially the case in a country as Lebanon where wage earners constitute more than two-thirds of the labor force , and where unemployment compensation benefits are non-existent. Changes in the structure of the labor market and the spread of poverty have tended to move together in the recent period, with the volume of marginal activities increasing, disguised unemployment prevailing relative to overt unemployment, and job turnover rising at the expense of stable employment and accumulation of experience. Overt unemployment, broadly defined (actually working, looking for work, or have given up in despair looking for work) is estimated at around 13.4 percent . Poverty can also be regarded as a generator of unemployment and not only as a consequence of it. Lack of access to productive resources often prevents the poor from launching small or medium income-generating projects, which currently provide the main scope for creating employment opportunities, given the saturation in the traditional sectors. The poor categories find it extremely difficult to have access to banking or financial facilities. Agricultural holdings do not necessarily offer a means of escape from poverty unless their size and soil productivity and marketing outlets are adequate to generate sufficient income to meet the basic needs of the household. The number of agricultural holdings in Lebanon is estimated at about one million, whereas only 7.7 percent of the labor force, or 85,000 people, are actually engaged in agriculture . Even real estate owners suffered as inflation eroded the value of rents which were frozen during the war period. The shrinking of yields from old rents placed some small real estate owners close to the poverty line. The elaboration and implementation of policies to improve the standard of living and alleviate poverty require the adoption of overall and sectoral policies, and involvement of the entire government apparatus within an integrated strategy which recognizes the roles and responsibilities of the private and civil sectors. The paragraphs that follow attempt to identify some of the ingredients of such a strategy. Wage policy is a major element in improving living standards and in the fight against poverty, as wage earners constitute currently around 70 percent of the total labor force in Lebanon , and because the value of real wages was eroded by inflation during the last two decades . Inflation has continued in recent years, though at relatively moderate rates, averaging 10 percent a year between 1993 and 1997 . Moreover, successive wage corrections have not been sufficient to compensate for the effects of inflation and the cumulative rise in the cost of living. Over the last 20 years, the share of wages in the gross domestic product declined considerably, while that of employers rose . In the period 1974-1990, the real minimum wage level lost some 70 percent of its value. At the same time, the decline in the mean wage exceeded that in the minimum wage because of the scale used in correcting wages, where the percentage of increase declines as the wage level rises . As a result, poverty has increased among wage earners, especially those employed in the public administration. This requires formulating an equitable wage policy which reconciles the requirements of economic growth and the limited resources of the state, on the one hand, and improving the standard of living, on the other. Viewed as one aspect of the policy aimed at improving living standards and combating poverty, employment policy (creation of new employment opportunities and formulation of programmes for vocational rehabilitation and increasing productivity) appears to be largely spontaneous and left to the market mechanism. Official pronouncements do not include reference to any specific employment policy adopted by the government. The Lebanese labor market is open and free of any effective regulation regarding the employment of expatriate labor especially in the sectors of agriculture, construction, hotels, services and petty trade. At the same time, the size of the Lebanese force grew from about 900,000 in 1987 to 1.1 million in 1996, and continues to grow at a fast rate due to the slowing down in emigration, and the rise in the number of Lebanese job seekers at an average annual rate of 40,000 . These factors put added pressure on the labor market and increase the rate of overt unemployment, disguised and partial unemployment - all being phenomena associated with poverty. This demands the adoption of a more systematic, and less spontaneous, approach for promoting employment. It would involve the formulation of programs and provision of incentives to protect the labor market; create new employment opportunities to absorb the unemployed and the young seeking employment for the first time; and the rehabilitation of those already employed to improve their productivity. This would entail the adoption of policies and measures in favor of existing small enterprises, and promoting the establishment of new ones, as such enterprises are considered to be more capable of creating new jobs in the immediate and medium-term; and the rehabilitation of so-called marginal activities currently left to foreigners. Available information relating to agriculture indicates that there are real possibilities for horizontal and vertical expansion capable of creating new employment opportunities, especially in the rural areas which suffer from the spread of absolute and abject poverty, and from migration to the cities and abroad. Similarly, the ability of the Lebanese industry to withstand heavy losses during the war indicates that it continues to retain numerous comparative advantages, rendering its support a highly rewarding alternative for achieving economic growth accompanied by increased employment opportunities. This acquires added significance from the fact that the share of the services sector in employment and in the gross domestic product has been relatively stable since the eve of the war, which points to its relative saturation and the limited employment opportunities it could offer. As for encouraging the establishment of small enterprises, some positive steps can be discerned, which relate mainly to access to credit. It cannot be said, however, that the ingredients for a plan of action in this field exist. Credit facilities available to small enterprises have so far remained of marginal importance, having their origin either with international organizations, non-governmental organizations, or with the Ministry of Social Affairs. The banking sector has remained reluctant to adopt a credit policy in favor of small and medium establishments. At the level of vocational preparation, as a means of enabling the poor and raising their capabilities to hold productive jobs that would increase the resources available to them, the government has established a special ministry to deal with the issue. The main shortcoming, however, remains the low ratio of students enrolled in vocational education (8.8 percent) relative to total enrolment at the intermediate and secondary levels, whereas the ratio should be in the neighborhood of 25 percent . Shortcomings are also reflected in the dominance of private education (78 percent of students) over public education in this field ; lagging of existing specializations behind the emerging needs in the labor market; and the absence of programs aimed at the rehabilitation of workers and professionals in service, and learning about deficiencies in their experience and remedying them. Reducing the cost of living is another ingredient in the policy to fight poverty. As can be observed, the gap between incomes and prices widened dramatically during the war, in particular between 1985 and 1991 when prices increased four times more than wages . After 1992, the Government was able to stabilize the currency, and even improve the rate of exchange of the Lebanese Pound relative to foreign currencies. Moreover, the annual rate of inflation was brought down to about 10 percent and below. The social ramifications of these improvements, however, have remained weak, especially that they have not been reflected in lower prices for basic consumption commodities. Moreover, the limited measures which the government took, such as the activation of price controls from time to time, did not prevent prices from remaining high. With respect to policies related to taxes, fees and pricing of services, sufficient attention has not yet been given to the social dimension. This is reflected in putting aside the principle of progressive taxation and the property tax and by the unification of the income and profit tax, and reducing them to less than 10 percent; and increasing reliance on indirect taxes and fees which have risen sharply. Moreover, the pricing of some services, such as the telephone, exceeds by far the cost of production and operation and aims to achieve a financial surplus. Safety nets play an important role in reducing the spread of poverty by dealing with its consequences or reducing the claims on salaries and wages. Social security is the leading element in these nets, matched by the Cooperative of Public Sector Employees and security sectors insurance schemes in the public sector. These systems are supposed to provide their members with health coverage and pensions (or end of service indemnity) and other advantages. The scope of their activities, however, covers about half the Lebanese citizens only . The other half is looked after, in varying degrees and for different durations depending on the field, by the Ministry of Public Health, the Ministry of Social Affairs through the comprehensive health-social services centers attached to it, the Council for the South, the Ministry and Fund for the Displaced and the High Relief Committee. Whereas the volume and quality of coverage provided by the Cooperative of Public Sector Employees, and the security sectors insurance schemes, has improved, the role of the National Social Security Fund appears to have relatively receded, with membership falling from 38 percent of the total labor force in 1974 to 28 percent at the end of 1996 . Moreover, the actual value of the additional benefits to salaries and end-of-service indemnities declined by considerable proportions. The drawing up of a general framework for improving living standards in Lebanon, and prompting the State to draw up and adopt a general social policy, are among the basic functions of the Ministry of Social Affairs. In addition, the Ministry must still follow-up on the implementation of plans, programs and measures stemming from such a policy, and ensure their consistency with the intended objectives. The Mapping of Living Conditions in Lebanon constitutes a step in this direction, providing an objective basis to identify the needs and priorities at the national and regional levels.