Hicham SafieddineBanking on the State: The Financial Foundations of Lebanon (Stanford University Press, 2019).

Jadaliyya (J):  What made you write this book?

Hicham Safieddine (HS): I was researching the role of Palestinian entrepreneurs in the Lebanese economy when I read in passing that Lebanon’s central bank was founded in 1964. That is a full two decades after the country’s official independence from France. This rarely-mentioned fact about Lebanon led me to look into the story of Banque du Liban. I soon gained an appreciation of how pivotal central banks were and remain to national statehood and how little literature there is on the subject in relation to Arab countries. The case of Lebanon was all the more poignant given the conventional history of its laissez-fare economy with its assumption of a weak state. The research evolved into an in-depth study of Lebanon’s financial foundations, stretching from late Ottoman times to the outbreak of the civil war in 1975, with a focus on the post-WWII period. I relied on an array of untapped archival sources (diplomatic cables, newspapers, banking histories, expert studies) in the United States, France, and Lebanon to reconstruct what happened, why it happened, and how it speaks to broader themes of political economy, state formation, and financial sovereignty in the region and beyond.

J:  What particular topics, issues, and literatures does the book address?

HS: Banking on the State intervenes in several literatures in three major ways. Firstly, it sheds light on the creation of financial institutions as part of building states and markets during the age of independence. The emergence of central banking in previously colonized regions remains under-theorized. In the Arab region, recent and valuable studies of colonizing projects cover the realm of education, military, law, civic space, and later the economy. The sphere of finance, which I tackle in this book, has rarely served as a primary object of investigation, and the few studies available do not extend to the post-independence period.

Secondly, the book moves beyond the fetishized use of sectarianism as a primary framework for understanding Lebanon. It equally builds on, and at times challenges, recent studies of Lebanon’s political economy that do not themselves dwell on sectarian tropes but are largely concerned with illustrating the open economy nature of Lebanon by showing how the Lebanese state, in the first decade after independence, shaped the market through polices of deregulation. I reverse the direction of inquiry and examine how market forces and private actors shaped the state. I center the role of bankers and financial experts, rather than sectarian leaders, in the construction of state institutions and by extension, national money markets. I emphasize these business actors’ political rather than purely economic machinations to maintain their hold on the economy amid a shift from French to US financial hegemony.

Thirdly, the book speaks to the global history of modern economic thought. In addition to bankers, I detail the role of a group of Arab economists at the American University of Beirut, like Said Himadeh and Salim Hoss, in the creation and circulation of ideas about reforming central banking. I show how they were influenced by, and transformed, contemporary global visions of economic development.

J: How does this book connect to and/or depart from your previous work?

HS: This is my first monograph. I am now preoccupied with the larger question of colonialism and finance in general, and the historical evolution of Arab financial systems and its impact on nation-state building in particular. A corollary topic is the intellectual history of post-WWII Arab economic thought which grew out of my research into the AUB economists.

J: Who do you hope will read this book, and what sort of impact would you like it to have?

HS: My narrative approach seeks to transform a normally dry subject, finance and economics, into lively prose. I frame political economy in relation to the struggles and stories of people and institutions (bankers, bureaucrats, intellectuals, governments) rather than a mechanical churning out of numbers, statistics, and graphs. This makes the book accessible to a wide range of specialist and non-specialist audiences. These include scholars and students of Middle East studies, global political economy, business history, Lebanese modern history, and intellectual history of finance. It can also appeal to publics critical of banker power in Lebanon, and possibly bankers and entrepreneurs open to reading an alternative history of their profession.

My aim of writing Banking on the State was multifold. The book seeks to provide a fresh and illuminating account of how financial regulation in general, and central banking in particular, are intertwined with nation-making and state sovereignty. I hope the book inspires similar projects for other countries or regions. I also wanted to write a global history of a country, Lebanon, whose historiography is beset by parochialism and exceptionalism. I challenge long-held views about Lebanon’s open economy and offer a convincing case of moving beyond the obsessive trope of sectarianism. I base my argument on diligent archival evidence rather than polemical or argumentative debates. Methodologically, the book might also offer a new way of researching and writing political economy—I have come to call it political economy in a historical perspective. This approach blends structural analysis with empirical diligence and vivid historical narrative. There are promising developments in this regard in the field of political economy of the Middle East and I hope the book adds momentum to them.

J: What other projects are you working on now?

HS: I am currently working on two main projects. The first, in collaboration with Angela Giordani, is translating selected writings of Arab Marxist and Lebanese communist Mahdi Amel (Brill/Leftword). Amel, who was assassinated in 1987, examined the relationship between colonialism, underdevelopment, and national liberation. Recent Anglophone scholarship has shown keen interest in his legacy, but his own works have yet to be made available to English readers. I am also working on a journal article that explicates Amel’s conceptualization of sectarian hegemony in a colonial context.

The second project is a study of post-WWII Arab liberal economic thought that goes beyond the AUB reformers I study in my book and their impact on Lebanon. Economists like Burhan Dajani and state technocrats Abdallah Tariqi developed models for economic development that combined elements of Keynesianism, developmental institutionalism, and in some cases socialist planning, in order to address the challenges of state-building under the banner of Arab nationalism. Their story in relation to the broader Arab region has yet to be told.

J: Conspiracy theories abound about the 1966 collapse of Bank Intra discussed in your book. What is your contribution to the debate?

HS: The Intra crash was a watershed in Lebanese and Arab banking history. The bank was the largest in the country and had regional and global reach. Its collapse coincided with the global flow of petrodollars from regional financial centers like Beirut to US banks and the takeover of the latter of several Lebanese banking institutions. The meteoric rise and subsequent fall of its Palestinian founder Yusif Beidas generated a lot of controversy up until today. Beidas is often either portrayed as a hero or a villain. I found rich archival material in Washington that helped me piece together a more complicated story that involved local, regional, and global players and implicated both Beidas and his Lebanese rivals. I went beyond the crash itself and the question of the bank’s Palestinian identity so harped upon to understand the impact it had on restructuring Lebanon’s financial regulatory regime and banker power. My findings also shed light on the role of supranational policy networks dominated by the United States in determining the outcome of bargains between competing bids for the bank’s takeover.


Excerpt from the Book 

From the Introduction: Illusions of Financial Independence: Laissez-faire and the Money Doctors (pages 8-11)

The conflict over Lebanon’s financial regulatory regime and economic ori­entation was not only of interests but also of ideas. The idea of Lebanon as naturally suited to be a free-market economy was most vociferously articulated by Michel Chiha. A professional banker, prolific journalist, and influential politician, Chiha spent the better part of his adult life con­solidating Lebanese nationalist ideology in word and deed. He opposed the integration of Lebanon into nearby Syria or a larger Arab state and co-wrote Lebanon’s constitution in 1926 under French tutelage. Follow­ing a short stint in parliament in the 1920s, he exerted influence in the corridors of power through his close association with his brother-in-law Bishara Khoury. The latter hailed from a notable family in Mount Leba­non. After a long career serving French administration during the man­date, Khoury became the country’s first post-independence president in 1943. Aside from his association with Khoury, Chiha achieved broader ideological influence through his own writings in the press and public speeches. He espoused a dogmatic form of geographic determinism, which he argued dictated Lebanon’s social, political, economic, and even cultural characteristics. Lebanon was “unique in the world” due to its small size and particular nature. It was a refuge for minorities thanks to its moun­tainous topography, a seafaring nation thanks to its Mediterranean coast, and a natural trading route thanks to its purported location as a meeting point of three continents (Europe, Asia, Africa). Given the country’s al­leged lack of natural wealth, Chiha reasoned, it “must be given economic freedom.” In the lexicon of Chihism, the ancient merchant was reinvented as the modern entrepreneur. The Lebanese nation, Chiha concluded, was a nation of merchants at the individual level and sectarian minorities at the collective level. Most crucial for Chiha and the mercantile-financial class he represented was preserving the dominant trade and services sector at the expense of industry and agriculture.

Following independence in 1943, Chiha’s views were enthusiastically incorporated by the Khoury administration into state policy and dissemi­nated by think tanks and cultural centers into public discourse. Politically, the 1943 national pact struck between [President] Khoury and [Prime Minister Riyadh] Solh, each representing their respective elite communities of Christians and Muslims, consecrated the French-installed sectarian system, under which political office was linked to sectarian affiliation according to a set formula. Economically, market regulations introduced during World War II, including capital and exchange controls, were gradually removed. In public discourse, policies of deregulation were cloaked in Chiha’s laissez-faire ideology, which normal­ized an obsession with price stability at the expense of balanced economic growth. Newly founded research institutions like the Société libanaise d’économie politique (SLEP) and prestigious public debate fora like the Cénacle libanais acted as cultural conduits for the propagation of Chihism.

Conventional as well as critical accounts of Chihism have affirmed its legacy as the uncontested ideology of the Lebanese ruling elite during the formative years of independent Lebanon. This has reinforced the particu­larist and parochial narrative of Lebanon’s merchant republic as a unique model of unfettered laissez-faire. Its hegemonic status notwithstanding, Chihism was increasingly confronted at the height of the merchant republic by a competing, but not contradictory, bourgeois ideology of technocratic and state-managed modernization. The latter was highly significant in lay­ing the long-term financial foundations of the state. A group of profes­sional economists based at the American University of Beirut (AUB) were at the center of this countermovement. Members of this group like Said Himadeh and Salim Hoss saw financial regulation, namely, the setting up of a central bank, as an institutional imperative. Their names and works populate the footnotes and figures of most political economy studies of the period, but rarely figure in the grand narrative of the merchant republic that drew on their very work for its construction. Their story highlights the ideological and institutional dimensions of the shift from French to U.S. economic and political influence, which are often overshadowed by the story of oil and Cold War geopolitics.

The AUB’s developmental institutionalists, as I refer to them, played a pioneering role in the diffusion and circulation of ideas about the national economy that challenged dominant paradigms of unregulated finance. They equally contributed to the idea of Lebanon, no less than the ideology of Chihism, by giving the latter a hardwired statistical existence through their calculations of Lebanon’s gross domestic product, at a time when international organizations like the UN and the IMF were struggling to distinguish Lebanese from Syrian economic data. The influence and out­reach of these economists, individually and institutionally through the Economic Research Institute (ERI) they set up in 1953, went well beyond academic and scholarly circles. They had access to Lebanese elite public opinion, including the Cénacle libanais, and penetrated the bureaucratic apparatus of the state well before the rise of the mild form of etatism as­sociated with Fuad Chehab’s presidency (1958–64).

The economic philosophy and financial expertise of these scholars were part of the global transformation of monetary policies and practices in the early to mid-twentieth century. These transformations were largely driven by U.S. economic expansion abroad and the rise of Third World nation-states. In the early 1900s, U.S.-led missions of financial experts like Parker Willis and Edwin Kemmerer were dispatched to Caribbean and Asian countries under U.S. influence, like the Philippines, to “fix” cur­rency systems and tie them to the U.S. dollar. By the 1930s, the majority of U.S. “financial missionaries,” who had grown into a professional class of “money doctors,” were graduates of the colonial experience. In the post–World War II period, these missions grew from enforcers and sta­bilizers of currency systems tied to the U.S. dollar into the initiators and overseers of elaborate schemes of financial control that encompassed all aspect of financial administration, including tax codes, private banking regulation, and currency reform.

These U.S. money doctors espoused paternalistic oversight over weaker nations like that of former imperialist powers like Britain and France. In the post–World War II period, however, some of their views on central banking reform diverged from those of their European counterparts. Brit­ish and French monetary officials often resisted the creation of national central banks. Their nations having lost military and political influence, they suggested reforming existing currency boards that kept local curren­cies tied to the franc or the pound sterling. By contrast, unorthodox U.S. money doctors like the Federal Reserve Bank’s Robert Triffin encouraged and aided the creation of national central banks. Triffin understood the necessity of supporting economic nationalism that espoused a strong cen­tral bank in former European colonies in order to reorient their economies away from the colonizing metropole—and communist alternatives—and towards the international market. Central banking reform in these “Third World” countries became part and parcel of broader discourses of the “science” of economic modernization that were adopted by thousands of Arab and other “Third World” professionals trained in the United States, thus exerting U.S. economic power abroad.

In Lebanon, U.S.-educated money doctors on the faculty of the Ameri­can University of Beirut called for financial reform inspired by modified versions of Keynesianism and economic institutionalism that they argued were better suited to underdeveloped money markets. Their empirically oriented economic philosophy offered financial solutions without under­mining the ideological basis of laissez-faire. This allowed their compet­ing doctrine to gain a footing in the state and in public discourse in the merchant republic era. But it also reduced the question of social control to developing the statistical machinery of the state and its administrative apparatus in order to rationalize rather than radically change the uneven economic structure of Lebanon’s service-dominated economy. Under such a configuration, local development was more easily geared to the inter­est of global capital and its local agents, rather than the benefit of the broader domestic population. The AUB institutionalists had thus struck a Faustian bargain with the West. Their “deal” aided, even if belatedly, the incorporation of Lebanon’s financial system into the international monetary order in the hope of securing a long-term future of balanced economic growth. But thanks to the entrenchment of the local interests of the mercantile-financial class, there was little economic development to show. The country remained dependent on a hyperinflated services sec­tor and external capital inflows for its economic survival, and subject to foreign interference for its political viability.