Cyclopedia Of Economics 3rd edition

Should the United Nations administer Iraq? Is it - as Kofi Annan, its General Secretary, insists, the best-qualified to build nations? Or will it act as a bureaucracy out to perpetuate itself by preventing true transformation and indigenous rule? Kosovo is a lucrative post for more than 10,000 exorbitantly overpaid international administrators and perked consultants as well as 40,000 itinerant peacekeepers.

The U.N. has been reasonably successful elsewhere both in peacekeeping and administration - notably in East Timor, Afghanistan and Sierra Leone. It widely thought to have dismally failed in Bosnia-Herzegovina. But the lessons of its involvement in Kosovo - the second longest and least reserved - may be of particular relevance.

In the wake of NATO's Operation Allied Force in 1999, Kosovo was practically severed from Yugoslavia and rendered a U.N.-protectorate under resolution 1244 of the Security Council. UNMIK (United Nations Mission in Kosovo) was formed to serve as the province's interim administrator. It was charged with institutions-building and a transition to self-governance by the now overwhelmingly Albanian populace.

Its mission was divided to four "pillars": Police and Justice, Civil Administration, Democratization and Institution Building (overseen by the Organization for Security and Cooperation in Europe) and Reconstruction and Economic Development (managed by the European Union). Four years later, Kosovo has its own government, installed last month - and a viable police force.

UNMIK had to spent the first 18 months of its mandate re-establishing basic services in a land scorched by 78 days of massive bombardment. It also put in place the rudiments of a municipal administration. A parliament and presidency followed. Surprisingly resilient, they survived two - bloodied - elections. The U.N. is planning to transfer, over the next few months, many of its "competencies" to the three-party broad coalition in power. Last month, a transfer council was established to manage the transition.

But Kosovo is an unsettled place. Its status is unresolved. Is it to be independent, as its legislators demand - or an inseparable part of Serbia, as the late assassinated Serbian prime minister, Zoran Djindjic claimed? UNMIK's travel documents and its license plates, for instance, are still not recognized by many countries.

Investors - including wealthy diaspora Kosovars - are deterred by this uncertainty and the social and civil unrest it fosters. Had it not been for KFOR, the 35,000-strong NATO-commanded military detachment, Kosovo might well have reverted to civil war, or crime-infested anarchy. That, astoundingly, Kosovo has no law to deal with foreign investment does not help.

Partly because of that, Kosovo's economy is still a shambles. The United Nations - and the acronym soup of multilateral development banks, aid agencies and non-governmental organizations that descended on the region - failed to come up with a coherent plan for endowing Kosovo with a sustainable economy.

Where UNMIK, with European Union assistance, did intervene - in setting up institutions and abetting economic legislation - it has done more harm than good. The establishment of workers' councils, for instance, inhibited the proper management of socially owned enterprises and rigidified the budding labor market with dire consequences.

One in two Kosovars is unemployed. Whatever activity there is, is confined to trading (read: smuggling), retail and petty services. The wild construction or reconstruction of 250,000 houses wrecked by the war is fizzling out and the absence of both mortgage financing and a sizable domestic industry of construction materials are detrimental to the sector's viability.

Tenders for complex infrastructure jobs are usually snatched by foreign competitors. Reputable Kosovar-owned construction multinationals hint at discrimination and worse. But the business segment of the economy is illusive and dilapidated. Of 861 socially-owned firms identified by the International Crisis Group, only 330 are viable, according to UNMIK.

Kosovo has no private sector to speak of - though it has registered 50,000 small and medium, mostly paper, typically ad-hoc, enterprises. Of 2774 members of the Kosovo Chamber of Commerce - 1667 were fly-by-night construction outfits.

The majority of economic assets are still in public or "social" hands. In an interview granted to the Far Eastern Review last year, Ali Jakupi, Minister of Trade and Industry of Kosovo, diplomatically pointed the finger at UNMIK's glacial pace of reform.

Land ownership is a contentious issue. The privatization of utilities is a distant dream, despite the creation of the Kosovo Trust Agency, a convoluted attempt to dispense of certain assets while skirting the legal no man's land which is Kosovo.

Despite all efforts, commercial law is scant and poorly enforced. No one understands why the number of commercial bank licenses is limited, why, until recently, UNMIK worked only through one bank and why establishing an insurance company is such a harrowing - and outlandishly expensive - ordeal. Kosovo is the only place on earth where price cartels (for instance, in the assurance sector) are not only legal - but mandatory.

Kosovar banks still keep most of their clients' deposits abroad for lack of an indigenous legal framework of collateral and bankruptcy. Interest rates are prohibitively high and repayment terms onerous. The only ray of light in a decrepit financial system is the euro, Kosovo's official currency and a source of monetary stability and trust.

The new Ministry of Finance and Economy has introduced customs duties and a few taxes with modest success. But the government's revenue base is pitiful and a Byzantine, import-biased, tax law makes export-oriented manufacturing a losing proposition. Kosovo's trade deficit is almost equal to its gross domestic product. Had it not been for generous remittances from Kosovar expats and immigrants - pegged at $1 to 1.5 billion a year, the province's economy would have crumbled long ago.

Nor has Kosovo's infrastructure been rehabilitated despite the $5 billion poured into the province hitherto. Electricity, for instance, is intermittent and unpredictable. The roads are potholed and few, the railways derelict. Fixed line penetration is low, though mobile telephony is booming. This sorry state was avoidable.

Kosovo is not as poor as it is made out to be by interested parties. It has enormous lead reserves, coal and lignite veins and loads of zinc, silver, gold, nickel, cobalt and other minerals, including rumored mines of uranium. The territory actually used to export electricity to both Macedonia and Montenegro.

Official statistics ignore a thriving informal economy, encompassing both the illicit and the merely unreported. Kosovo is a critical node in human trafficking, cigarette and oil derivatives smuggling, car theft and, to a lesser, extent, drugs and weapons trading networks. Revenues in service businesses - cafes, restaurants, gambling institutions, prostitution - go unreported. Kosovo is one of the global centers of piracy of intellectual property, notably software and movies.

The Central Fiscal Authority of Kosovo estimated that, in 2001, duties and taxes were paid only on $590 million worth of imports (at the time, c. $540 million euros) - only about 30 percent of the total. These figures are proof of the entrepreneurial vitality of the Kosovars and their aversion to state interference.

USAID chief Dale Pfeiffer praised Kosovo, in an interview granted to the daily paper, Koha Ditore:

"There is bureaucracy, there is a corruption, but if we compare with neighboring countries, it seems to be at a lower level. Since 1999, Kosovo is building its own new governmental structures. Mainly, your government is more modern than government in Serbia, Macedonia or even Bosnia. I think that corruption is not even same at the level as neighboring countries. Although corruption is something that can grow very easily, currently it doesn't seem to be a big obstacle for businesses."

Still, he reverted to typical counterfactual condescension. Federal Yugoslavia, of which Kosovo was a part, was a modern state, more advanced than many EU members. Yet, Pfieffer professed to be worried.

"Day by day, more competencies are being given to the Kosovo Government. My concern is, does the Government have the ability to manage its own competencies. I think there should be a balance; you must gain competencies which can be applied."

Many observers think that had it not been hobbled by the indecision and overbearing officialdom of the international community, Kosovo would have fared better. Even evident economic assets - such as nature parks, vineyards and ski slopes - were left undeveloped. Because it hasn't met EU regulations - Kosovo is unable to export its wines, juices and agricultural produce.

But to hold this view is to ignore UNMIK's contribution to the containment of organized crime - mostly imported from Albania and Macedonia. Admittedly, though, UNMIK failed to defend minority rights. Kosovo has been ethnically cleansed of its Serbs. The UN High Commissioner for Refugees (UNHCR) and OSCE warned last month that minorities "continue to face security problems and lack access to basic services (such as) education, health services and equitable employment."

Kosovo teaches us lessons which should be diligently applied in Iraq. The involvement of a long-term active military component intended to guarantee basic law and order is crucial. U.N. administrations are good at reconstruction, rehabilitation - including humanitarian aid - and institution-building.

But they are utterly incompetent when it comes to the economy and to protecting minorities from the majority's wrath. Pecuniary matters are best left to private sector firms and consultants while helpless minorities better start praying.

Worse still, as opposed to an occupying army, whose top priority is to depart - U.N. bureaucracies fast gravitate towards colonialism. The U.N.-paid and U.N.-sanctioned rulers of both Kosovo and Bosnia-Herzegovina exercise powers akin to erstwhile British viceroys. Nor do they have any incentive to terminate their position - gratifying as it is to both their egos and their wallets.

UNMIK is the reification of the concept of conflict-of-interest. If it succeeds to render the natives economically and politically independent - it is no longer needed. If it fails - it survives on a bloated budget. To be an international official in Kosovo is to endure the constant clashes between one's professional conscience and one's propensity to live the good life. Only saints win such battles. Whatever UNMIK is - it is decidedly not saintly.

But, as Augustin Palokaj, Brussels correspondent for Koha Ditore, notes, comparing Kosovo to Iraq can go too far:

"Kosovo has no oil and one-third of the population of Baghdad, and it is not interesting for investments ... Iraq will have an easier time when it comes to political status. Iraq is, and will remain, a state. It is still not known what Kosovo's fate will be. Unlike in Kosovo, there will be both aid and investment in Iraq. The Iraqi people will decide on the status of their country, whereas the Security Council, that is to say China and Russia, will decide about Kosovo."

And does he think the United Nations should administer a postwar Iraq?

"The UN would only complicate things, but the Americans will give it a role, just for the sake of it, which will satisfy the bureaucrats that must get their huge salaries. Americans are also aware of the danger that if the UN takes over the administration of postwar Iraq ... criminals from various countries would be infiltrated into Iraq, as they have done in Kosovo. How can peace be established by an organization whose policemen allowed eight war crimes suspects to escape from prison, as happened to UN policemen in Kosovo. Instead of feeling shame for such things, the chiefs of UNMIK Police produce propaganda about their successes. The key American role in postwar Iraq will prove what was learned from Kosovo."

The 185 member states of the United Nations Climate Change Convention met repeatedly since 2003 in order to contemplate what steps may be needed to implement the Kyoto protocol, now ratified by more than 130 countries, including Russia and the European Union. Signatories have ten years - starting in 2003 - to cut their emissions of greenhouse gases.

In the decade or so of transition, the countries of central and eastern Europe have suffered droughts and floods in equal measure. They attribute this shift in climate patterns to global warming. Ironically, the crumbling of their smokestack industrial infrastructure reduced their emissions by 38 percent between 1990-2000, according to a report presented at the conference. In Estonia, transition's poster kid, emissions declined by 56 percent, according to ETA, the news agency.

The OECD countries increased theirs by 8.4 percent over the same period. This disparity between rich and poor nations in Europe casts a cynical light over the European Union's constant environmental castigation of east Europeans. The EU adopted the Kyoto protocol in May 2002 and committed itself to a total reduction of 8 percent of emissions by 2012.

Even if wildly optimistic forecasts regarding car usage and the restoration of central and east Europe's manufacturing base are met - emissions would still be well in compliance with annex I of the Kyoto protocol, which lists the reductions required of the candidate countries.

This cannot be said about the current members of the European Union and other rich, industrialized polities. Lawmakers in the former communist bloc are aware of it. Quoted by Radio Free Europe/Radio Liberty, the Russian Federation Council Science, Culture, Education, Health, and Ecology Committee Chairman Viktor Shudergov told the news agency Rosbalt in October 2002:

"We must calculate and anticipate the maximum possible improvement for our own industry so that in a few years we don't find ourselves purchasing (pollution) quotas. Russia is currently the world's major supplier of oxygen in the atmosphere. Other countries are using Russia's biological resources to develop their industries. The USA has every possibility to reduce its own emissions but refuses to do so. It would have been more useful if the main source of ecological pollution, the United States, had participated."

Central and east Europeans have a few things going for them as far as the environment goes. Public transport is more developed in the countries in transition than in the rest of the continent. Industry - rebuilt from scratch - invariably comes equipped to minimize pollution. Private cars are less ubiquitous than in Western Europe. Vast swathes of countryside remain virtually untouched, serving as "green lungs" and carbon sinks.

If, as the European Commission envisions, a community-wide regime of emissions-trading is established, the countries east of the Oder-Neisse line could well benefit as net sellers of unused quotas. According to Ziarul Financiar, a Romanian financial newspaper, in 2001, the government of Romania negotiated the sale of some $20 million in carbon dioxide emission rights to Japan.

A similar deal - this time for c. $4 million - was struck with the Swiss. The money was used to refurbish the decrepit central heating systems in a few townships. The interesting twist is that the very enhancement of the energy efficiency of the antiquated pipelines freed for sale portions of the emissions quota.

It is telling that Romania was unable or unwilling to sell its emissions to the United Kingdom, Denmark, or the Netherlands, all three of which host functional emissions-trading pilot projects. The trading rules are so complex - certain sectors and gases are excluded and fiendishly intricate auctions regulate the initial allocation of quotas - that many potential buyers and sellers prefer to abstain.

Estonia circumvented the nascent exchanges altogether. It convinced the Dutch, Finns, Germans, and Swedes to invest in reducing carbon dioxide emissions in Estonia. The reductions, according to the Baltic News Service, will be applied to the quotas of the investing nations.

Still, the political leadership of most countries in transition understands that it has at least to be seen to be supportive of the Kyoto process. Russia announced in the World Summit on Sustainable Development in Johannesburg in September 2002 its intention to ratify the protocol by the end of 2004, as it did. A year later (2003), it also hosted the International Conference on Climate Change. Its then Prime Minister Mikhail Kasyanov boasted of a one third reduction in emissions in recent years.

Environment ministries - a novel fixture - have proliferated throughout the region and, backed by the international community, have become assertive. The Croat minister of environment, for instance, warned his own government in March, in his first national report on local climate changes, of international sanctions due to a considerable increase in the emissions of noxious gases since 1990.

According to the Regional Environmental Center for Central and Eastern Europe, many countries in the region - including three New Independent States, Ukraine, Bulgaria, and the Czech Republic - have completed national climate change action plans. Hungary, Kazakhstan and Russia are preparing theirs. The BBC says that Slovenia is working on a program of its own, though in compliance with the Kyoto requirements.

Less scrupulous politicians regard the environment as another way to extract funds from Western governments and multilateral lending institutions. Especially active are the European Bank for Reconstruction and Development (EBRD) and the World Bank. The former approved $12 million to Vetropak Straza, Croatia's only glass factory. The money will be invested in a new technology with less harmful emissions.

Together with Citibank, the EBRD is committed to financing the $470 million conversion of the Bulgarian thermal power plants, Maritsa 2 and 3 to more efficient and less polluting coal burning. The Bank is collaborating with the Dutch to establish a carbon credits market exclusive to its client states - the countries of central and eastern Europe and the Balkan.

Pollution-phobic European countries - mainly in Scandinavia - work with the World Bank and match its funds in specific environmental undertakings. Thus, the Danish Agency of Environment has financed 13 projects in Bulgaria last year, part of $18 million it has granted that country alone since 1995. It is now assisting Bulgaria in its application for world Bank funds to counter the effects of past pollution.

The Western press casts him in the role of an African Saddam Hussein. Neighboring leaders supported his policies, but then succumbed to diplomacy and world opinion and, with a few notable exceptions, shunned him. The opposition and its mouthpieces accuse him - justly - of brutal disregard for human, civil, and political rights and of undermining the rule of law. All he wants, insists Comrade - his official party title - Robert Mugabe of Zimbabwe is to right an ancient wrong by returning land, expropriated by white settlers, to its rightful black owners.

Most of the beneficiaries, being real or alleged "war veterans", happen to support his party, the Zimbabwe African National Union-Patriotic Front, or ZANU-PF, and its profligate largesse:

"We must deliver the land unencumbered by impediments to its rightful owners. It is theirs by birth; it is theirs by natural and legal right. It is theirs by struggle. Indeed their(s) by legacy," he thundered in a speech he made to the Central Committee of his party in March 2001 in response to mounting multi-annual pressures from war veteran associations.

It was Margaret Thatcher of Falklands fame who, after two decades of fierce fighting, capitulated to rebels, headed by Mugabe. The Iron Lady handed to them, in the Lancaster House agreement, an independent Zimbabwe - literally, "Great Stone House". The racist Rhodesia was no more. But the agreement enshrined the property rights of white farmers until 1990 and has, thus, sown the seeds of the current chaos.

Many nostalgic white settlers in Zimbabwe - mostly descendents of British invaders at the end of the 19th century - still believe in their cultural - if not genetic - superiority. Their forefathers bought indigenous land from commercial outfits supported by the British Crown. The blacks - their plots and livestock confiscated - were resettled in barren "communal areas", akin to Native-American reserves in the USA minus the gambling concessions.

Starting in 1893, successive uprisings were bloodily suppressed by the colonizers and the British government. A particularly virulent strain of apartheid was introduced. By 1914, notes Steve Lawton in "British Colonialism, Zimbabwe's Land Reform and Settler Resistance", 3 percent of the population controlled 75 percent of the land. The blacks were "harshly restricted to a mere 23 per cent of the worst land in designated Reserves. There were only 28,000 white settlers to nearly one million Africans in Zimbabwe at this time."

Land ownership hasn't changed much since. The 1930 "Land Apportionment Act" perpetuated the glaring inequality. At independence, according to "Zimbabwe's Agricultural Revolution" edited by Mandivamba Rukuni and Carl Eicher and published in 1994 by the University of Zimbabwe Publications, 6000 white commercial farms occupied 45 percent of all agricultural land - compared to only 5 percent tilled by 8500 black farmers. Another 70,000 black families futilely cultivated the infertile remaining half of the soil.

As black population exploded, poverty and repression combined to give rise to anti-white guerilla movements. The rest is history. The first post-independence land reform and resettlement program lasted 17 years, until 1997. It targeted refugees, internally displaced people, and squatters and its aims were, as Petrunella Chaminuka, a researcher at SAPES Trust Agrarian Reform Programme in Zimbabwe, summarizes a 1990 government discussion paper in the "Workers' Weekly":

"To redress past grievances over land alienation, to alleviate population pressure in the communal areas and to achieve national stability and progress. The programme was designed to enhance smallholder food and cash crop production, achieve food self-sufficiency and improve equity in income distribution."

Land reform was an act of anti-colonialist, ideologically-motivated defiance. The first lots went to landless - and utterly unskilled - blacks. Surprisingly, theirs was a success story. They cultivated the land ably and production increased. Certified farmers and agronomists, though, had to wait their turn until the National Land Policy of 1990 which allowed for compulsory land purchases by the government. There was no master plan of resettlement and infrastructure deficiencies combined with plot fragmentation to render many new farms economically unviable.

As ready inventory dried up, the price of land soared. Droughts compounded this sorry state and by the late 1980's yields were down and squatting resurged. Unemployment forced people back into rural areas. Egged on by multilateral lenders, white farmers, and Western commercial interests, the government further exacerbated the situation by allocating enormous tracts of land to horticulture, ostrich farming, crocodile farming, ranching and tourism thus further depleting the anyhow meager stock of arable acreage.

International outcry against compulsory acquisitions or targeting of c. 1600 farms forced the Zimbabwean government and its donors to come up in 1997-9 with a second land reform and resettlement programme and the Inception Phase Framework Plan. Contrary to disinformation in the Western media, white farmers and NGO's were regularly consulted in the preparation of both documents.

In what proved to be a prophetic statement, the aptly named Barbara Kafka of the World Bank, quoted by IPS, gave this warning in the September 1998 donor conference:

"We are delighted that the government has called this conference as a key step in our working together to make sure that Zimbabwe reaps the results it deserves from its land reform programme ... Nevertheless, we must not be naive. The downside risks are high. There is abundant international experience to show that poorly executed land reform can carry high social and economic costs ... For instance, a programme that does not respect property rights or does not provide sufficient support to new settlers, is underfunded or is excessively bureaucratic and costly, or simply results in large numbers of displaced farm workers, can have very negative outcomes in terms of investment, production, jobs and social stability."

This second phase broke down in mutual recriminations. The government made an election issue out of the much-heralded reform and the donors delivered far less than they promised. Acutely aware of this friction, white farmers declined to offer land for sale.

Even as lawless invasions of private property recommenced in earnest, the government initiated the Fast Track Land Reform Plan in mid-2000. It envisioned the purchase of between 5-8 million of hectares of agricultural land, the resettlement of the rural indigent, the provision of infrastructure, technical advice and inputs by both civil and military authorities and the involvement of all "stakeholders" - especially white commercial farmers - in an on-going dialog in the framework of the Zimbabwe Joint Resettlement Initiative.

But the Plan fast deteriorated into strong-arm, threat-laden, and litigious confiscation of white property. Following a setback in the polls - its proposed constitution was rejected - ZANU-PF aided and abetted in the disorderly - and, sometimes, lethal - requisitioning of farms by a mob of war veterans, mock veterans, petty criminals, the rural dispossessed, party hacks, and even middle class urbanites. Ironically, the very anarchic nature of the process deterred genuine and the long term settlers.

About 2000 farms were thus impounded by the end of last year. The government refused to compensate farmers for the land seized insisting that such reparations should be paid by Britain. It did, however, provide pitiful sums for infrastructure added to the land by the white settlers.

As pandemic corruption, lawlessness, and mismanagement brought the country to the brink of insolvency and famine, Mugabe tainted with anti-Western diatribe his merited crusade for reversing past injustices. He lashed at the IMF and the World bank, at Britain and the USA, at white farmers and foreign capital. Xenophobia - no less that patriotism - is the refuge of the scoundrel in Africa.

In 1997, Britain's New Labor government ceased funding the acquisition of land from white farmers. Donors demanded matching funds from destitute Zimbabwe. By 1999, the entire West - spearheaded by the IMF - disengaged. Zimbabwe was severed from the global financial system.

This was followed by sanctions threatened by the EU and partly imposed the USA and the Commonwealth. Sanctions were also urged by prescriptive think tanks, such as the International Crisis Group, and even by corporate and banking groups, such as Britain's Abbey National.

Yet, discarding land reform together with Mugabe would be unwise. The problems - some of which are ignored even by the Zimbabwean authorities - are real. A negligible white minority owns vast swathes of forcibly obtained prime arable land in a predominantly black country.

A comprehensive - and just - land reform would cater to farm hands as well. They are mostly black - about one fifth of the population, counting their dependants. They live in shantytown-like facilities on the farms with little access to potable water, sanitation, electricity, phones, or other amenities. They were not even entitled to resettlement until recently.

According to "Rural poverty: Commercial farm workers and Land Reform in Zimbabwe", a paper presented at the SARPN conference on Land Reform and Poverty Alleviation in Southern Africa, in June 2001, only about one third of the most destitute black farm workforce have been imported as casual and seasonal workers from neighboring countries.

The rest, contrary to government propaganda, are indigenous. Yet, protestations to the contrary notwithstanding, the government, preoccupied with relieving growing tensions in the communal areas and rewarding its own supporters and cronies, refuses to incorporate farm hands fully in its Fast Track Resettlement Program. They are being accused of causing previous resettlement programs to fail.

The problems facing Zimbabwe's agricultural sector are reminiscent of the situation in Mozambique, Namibia, Malawi, Swaziland, Lesotho, and South Africa. Namibia has already threatened to emulate Zimbabwe. Sam Nujoma, the country's president, rebuked the market mechanism as "too slow, cumbersome and very costly". An understandable statement coming from the head of a government which, according to Namibian news agency, NAMPA, turned down 151 farms in 2001 for lack of funds.

"Land Reform in Zimbabwe: Constraints and Prospects", edited by T.A.S. Bowyer-Bower and Colin Stoneman, notes that development, growth, and poverty alleviation in the continent are directly linked to the ownership and cultivation of land - often the sole means of production. That no regional approach to this pressing issue has arisen attests to the quality of the self-centred, thuggish, and venal African leadership.

Politically-motivated land reform will lead to the emergence of the next generations of the deprived and the discriminated against. Resettlement has to be both fair and seen to be fair. It has to be based on unambiguous criteria and transparent and even-handed procedures. It has to backed by sufficient agricultural inputs and machinery, financial and technical assistance, access to markets, and basic infrastructure.

The proximity of services and institutions - from schools to courts - is critical. Above all, land reform has to look after people displaced in the process - commercial farmers and their workers - and thus enjoy near universal support or acquiescence. Legal title and tenure have to be established and recorded to allow the new settlers to obtain credits and invest in buildings, machinery, and infrastructure.

Alas, as both Human Rights Watch and the UNDP concluded in their detailed reports, none of these requirements is observed in Zimbabwe. Hence the recurrent failures and the blood-spattered chaos they have produced. Is Mugabe to blame? Surely. Is he the prime mover of this debacle? Not by a long shot. He merely encapsulates and leverages pernicious social forces in his country and in the continent. Until the root problems of Africa are tackled with courage and integrity Mugabe and his type of "reform" will prevail.
Lebanon, Economy of

In April 2003, a day after he won a parliamentary vote of confidence, 58-year old Rafiq Hariri, Lebanon's multi-billionaire prime minister, reluctantly formed a new, overtly pro-Syrian government with 30 ministers, only 11 of whom are new faces. It was to have been his last. He was murdered in February 2005.

Lebanese Information Minister Michel Samaha was quoted by regional news agencies as saying at the time Hariri's last government was proclaimed:

"The president indicated that the new government comes at a very sensitive time regionally. (It comes) in the shadow of pressures and accusations, which Israel is behind, targeting Syria and Lebanon to give up ... their principled stand that calls for resistance to occupation ... We must deal with...the importance of internal solidarity and solidarity with our Syrian brothers so we face as one the challenges directed at us."

Syria, in other words, is merely securing its Lebanese flank, faced with mounting tensions and an increasingly unhappy United States. By 2003, Hariri had formed 5 governments and had been serving as premier for 9 out of the last 11 years. Like Italy's Silvio Berlusconi, Hariri owned various media, including the Future television channel, a radio station and a newspaper. His tentacular grip extended to banking, real estate, oil and manufacturing.

Hariri was credited with the reconstruction of Lebanon's infrastructure, reduced to rubble by 15 years of rabid civil war that ended in 1990. The conflict and its aftermath have plunged Lebanon into a massive usurious public debt amounting to 180 percent of its gross domestic product, or $31 billion. Lebanon spends half its budget - about $3 billion - on interest payments.

Threatened with a default, international donors pledged yet another $4.4 billion in soft loans in November 2002. The USA, Britain, Germany and Spain refused to pitch in without the seal of approval of the International Monetary Fund, withheld until the beginning of the following year. By end-2002, Lebanese banks have been "convinced" to purchase $4 billion of interest free two-year government bonds. This slashed the country's debt service by $400 million a year.

Following the Paris-II donor conference, gross foreign exchange reserves surged to more than $10 billion. Gross capital inflow - at $3.2 billion - was enough to cover the trade deficit and yield a balance of payments surplus of $2 billion. Add to this $45 billion in total bank deposits - seven tenths of which are held in foreign currency - and the Lebanese pound's strength against the US dollar is explained. The price of Lebanese Eurobonds jumped 20 percent in the six months between October 2002 and April 2003.

In its latest financial statements, Banque Audi, a local outfit, pegged 2002 GDP growth at a miserly 1.5 percent. Exports increased by 15 percent to slightly more than $1 billion - though the Chamber of Commerce and the Ministry of Industry and Oil deem these figures wholly inflated. Construction still moves and shakes the economy with the number of square meters covered by permits up by one eighth - as is the number of international landings and departures. But activity in the Port of Beirut dropped, albeit marginally.

Lebanon is notorious for the glacial pace of its reforms. Market liberalization is peremptory. The country's 37 year old import monopolies are yet to be scrapped. Much-needed privatization is stalled. The electricity utility and two mobile phone operators alone can fetch up to $5 billion.

Two austerity budgets in a row - and the introduction of a value added tax in February 2002 - did nothing to revive the flaccid economy. The tax administration and the judiciary are infamous hotbeds of venality and bloated inaptitude. Both the banking system and the business community are risk-averse and interest rates are still too high, despite recent reductions.

Still, left to its own devices, the country can gradually regain its position as the banking and commercial hub of the Middle East. With a deep rooted mercantile culture, a well-equipped coast line, a polyglot, highly educated and high income population, private media and connections to all the nations of the region due to its multi-ethic composition - Lebanon is a natural economic anchor as well as the role model for a democratic, liberal and pluralistic Arab world. It is also the natural export route for Middle Eastern oil.

Alas, this is but a pipe dream. Lebanon is largely a puppet state, remote controlled by members of the Syrian secret services and some of its politicians. Anti-Syrian lawmakers and businessmen are harassed on a regular basis, often under the pretext of a security agreement between the two countries. In a notorious case, a television station owned by Gabriel Murr, a Christian candidate, was silenced in September 2002 on flimsy legal grounds.

Syria's pernicious influence is all-pervasive. The Central Boycott Office in Damascus - set up by the Arab League in 1951 to blacklist all firms with operations or subsidiaries in Israel - moved to renew its activities. Lebanon is one of its members. Such trade restrictions will do nothing to lure sorely needed foreign direct investment to its battered economy. But it can hardly be expected to resist Syrian pressure to comply.

As recent demonstrations prove, many denizens feel that Syria should emulate Israel and unilaterally withdraw from Lebanon its 20,000 troops and agents - an "occupying force" according to American Secretaries of State, Colin Powell and Condolenzza Rice. Others are still wary of their southern trigger-happy neighbor and regard Syrian presence as a kind of insurance policy. As recently as September 2002, Israel again threatened war over the diversion of water from the Wazzani, a border tributary of the Hasbani river.

The Hizbullah - a militant, well-armed, trained, Iranian-sponsored, anti-Israeli and anti-American militia cum political party in the south - would be only too happy to partake in future skirmishes. It receives $100 million annually from Iran and Syria in cash and in materiel. In a patently suicidal interview on CBS television's 60 Minutes, Hassan Nasrallah, the leader of the Shiite Muslim militant group proffered this thinly veiled threat:

"American policies in the region encourage this kind of retaliation, whether we agree with it or not ... I believe the continuation of American policy will make enemies of all Arabs and Muslims - 1,400,000,000 Muslims around the world. Lots of groups will surface, not necessarily al-Qaida. And they'll be impossible to bring to justice."

The war in Iraq, though mercifully shorter than feared, is an added burden. In April 2003, Mustapha Nabli, the World Bank's Middle East Chief Economist, warned of collapsing tourism (a mainstay of the Lebanese economy), surging oil prices (Lebanon is a consumer, though Syria a producer), faltering trade in with Iraq (a crucial import destination and source of subsidized crude) and dwindling foreign direct investment. Central Bank first vice-governor and former economy minister Nasser Saidi believes that the conflict shaves 1 to 2 GDP percentage points off Lebanon's growth annually.

Lebanon's economy is heavily dependent on expat remittances. According to the Saradar Investment House quoted by the Lebanese Daily Star, these equal one seventh of its GDP and have been growing by a whopping one quarter every year. This, on average, is five times both the amount and growth rate of foreign direct investment in the country.

The entire banking system relies on these familial flows. Growth in remittances outweighed the increase in foreign currency deposits by two to one and amounted to more than triple the leap in non-resident foreign currency deposits. But a global slump - and an Arab recession - may send many Lebanese emigrants packing and render this fount of foreign exchange desiccated.

Desperate to extricate itself from the Middle East's surrealistic quagmire, Lebanon is looking to the European Union. In June 2002 it joined the Euro-Mediterranean Partnership by signing an Association Agreement. It is thus eligible for free trade in industrial goods by 2010 and for cuts in tariffs and quotas till then. Lebanon runs a $3 billion trade deficit with the EU.

Nasser Saidi openly exhorts Arabs to resist American hegemony by teaming up with the Europeans. He reminds the EU that the Middle East is the origin of one third of its energy needs. He is all for the much proposed Euro-Mediterranean Investment Bank in conjunction with GAFTA the Greater Arab Free Trade Area and a World Bank-like EuroMed Investment guarantee Agency (EMIGA).

Saidi is representative of the philosophy of Lebanese civil servants and businessmen. But whether the EU is listening is another matter altogether. Patching up bruised relations with the USA may prove to be a higher priority and one that necessitates the sacrifice of Syria and its appendage, the nominally independent state of Lebanon.

Leisure and Work

In his book, "A Farewell to Alms" (Princeton University Press, 2007), Gregory Clark, an economic historian at the University of California, Davis, suggests that downward social mobility in England caused the Industrial Revolution in the early years of the 19th century. As the offspring of peasants died off of hunger and disease, the numerous and cosseted descendants of the British upper middle classes took over their jobs.

These newcomers infused their work and family life with the values that made their luckier forefathers wealthy and prominent. Above all, they introduced into their new environment Max Weber's Protestant work ethic: leisure is idleness, toil is good, workaholism is the best. As Clark put it:

“Thrift, prudence, negotiation and hard work were becoming values for communities that previously had been spendthrift, impulsive, violent and leisure loving.”

Such religious veneration of hard labor resulted in a remarkable increase in productivity that allowed Britain (and, later, its emulators the world over) to escape the Malthusian Trap. Production began to outstrip population growth.

But the pendulum seems to have swung back. Leisure is again both fashionable and desirable.

The official working week in France has being reduced to 35 hours a week (though the French are now tinkering with it). In most countries in the world, it is limited to 45 hours a week. The trend during the last century seems to be unequivocal: less work, more play.

Yet, what may be true for blue collar workers or state employees - is not necessarily so for white collar members of the liberal professions. It is not rare for these people - lawyers, accountants, consultants, managers, academics - to put in 80 hour weeks.

The phenomenon is so widespread and its social consequences so damaging that it has acquired the unflattering nickname workaholism, a combination of the words "work" and "alcoholism". Family life is disrupted, intellectual horizons narrow, the consequences to the workaholic's health are severe: fat, lack of exercise, stress - all take their lethal toll. Classified as "alpha" types, workaholics suffer three times as many heart attacks as their peers.

But what are the social and economic roots of this phenomenon?

Put succinctly, it is the outcome of the blurring of boundaries between work and leisure. This distinction between time dedicated to labour and time spent in the pursuit of one's hobbies - was so clear for thousands of years that its gradual disappearance is one of the most important and profound social changes in human history.

A host of other shifts in the character of work and domestic environments of humans converged to produce this momentous change. Arguably the most important was the increase in labour mobility and the fluid nature of the very concept of work and the workplace.

The transitions from agriculture to industry, then to services, and now to the knowledge society, increased the mobility of the workforce. A farmer is the least mobile. His means of production are fixed, his produce mostly consumed locally - especially in places which lack proper refrigeration, food preservation, and transportation.

A marginal group of people became nomad-traders. This group exploded in size with the advent of the industrial revolution. True, the bulk of the workforce was still immobile and affixed to the production floor. But raw materials and finished products travelled long distances to faraway markets. Professional services were needed and the professional manager, the lawyer, the accountant, the consultant, the trader, the broker - all emerged as both parasites feeding off the production processes and the indispensable oil on its cogs.

The protagonists of the services society were no longer geographically dependent. They rendered their services to a host of geographically distributed "employers" in a variety of ways. This trend accelerated today, with the advent of the information and knowledge revolution.

Knowledge is not geography-dependent. It is easily transferable across boundaries. It is cheaply reproduced. Its ephemeral quality gives it non-temporal and non-spatial qualities. The locations of the participants in the economic interactions of this new age are transparent and immaterial.

These trends converged with increased mobility of people, goods and data (voice, visual, textual and other). The twin revolutions of transportation and telecommunications really reduced the world to a global village. Phenomena like commuting to work and multinationals were first made possible.

Facsimile messages, electronic mail, other forms of digital data, the Internet - broke not only physical barriers but also temporal ones. Today, virtual offices are not only spatially virtual - but also temporally so. This means that workers can collaborate not only across continents but also across time zones. They can leave their work for someone else to continue in an electronic mailbox, for instance.

These technological advances precipitated the transmutation of the very concepts of "work" and "workplace". The three Aristotelian dramatic unities no longer applied. Work could be performed in different places, not simultaneously, by workers who worked part time whenever it suited them best.

Flextime and work from home replaced commuting (much more so in the Anglo-Saxon countries, but they have always been the harbingers of change). This fitted squarely into the social fragmentation which characterizes today's world: the disintegration of previously cohesive social structures, such as the nuclear (not to mention the extended) family.

All this was neatly wrapped in the ideology of individualism, presented as a private case of capitalism and liberalism. People were encouraged to feel and behave as distinct, autonomous units. The perception of individuals as islands replaced the former perception of humans as cells in an organism.

This trend was coupled with - and enhanced by - unprecedented successive multi-annual rises in productivity and increases in world trade. New management techniques, improved production technologies, innovative inventory control methods, automatization, robotization, plant modernization, telecommunications (which facilitates more efficient transfers of information), even new design concepts - all helped bring this about.

But productivity gains made humans redundant. No amount of retraining could cope with the incredible rate of technological change. The more technologically advanced the country - the higher its structural unemployment (i.e., the level of unemployment attributable to changes in the very structure of the market).

In Western Europe, it shot up from 5-6% of the workforce to 9% in one decade. One way to manage this flood of ejected humans was to cut the workweek. Another was to support a large population of unemployed. The third, more tacit, way was to legitimize leisure time. Whereas the Jewish and Protestant work ethics condemned idleness in the past - the current ethos encouraged people to contribute to the economy through "self realization", to pursue their hobbies and non-work related interests, and to express the entire range of their personality and potential.

This served to blur the historical differences between work and leisure. They are both commended now. Work, like leisure, became less and less structured and rigid. It is often pursued from home. The territorial separation between "work-place" and "home turf" was essentially eliminated.

The emotional leap was only a question of time. Historically, people went to work because they had to. What they did after work was designated as "pleasure". Now, both work and leisure were pleasurable - or torturous - or both. Some people began to enjoy their work so much that it fulfilled the functions normally reserved to leisure time. They are the workaholics. Others continued to hate work - but felt disorientated in the new, leisure-like environment. They were not taught to deal with too much free time, a lack of framework, no clear instructions what to do, when, with whom and to what end.

Socialization processes and socialization agents (the State, parents, educators, employers) were not geared - nor did they regard it as their responsibility - to train the population to cope with free time and with the baffling and dazzling variety of options on offer.

We can classify economies and markets using the work-leisure axis. Those that maintain the old distinction between (hated) work and (liberating) leisure - are doomed to perish or, at best, radically lag behind. This is because they will not have developed a class of workaholics big enough to move the economy ahead.

It takes workaholics to create, maintain and expand capitalism. As opposed to common opinion, people, mostly, do not do business because they are interested in money (the classic profit motive). They do what they do because they like the Game of Business, its twists and turns, the brainstorming, the battle of brains, subjugating markets, the ups and downs, the excitement. All this has nothing to do with money. It has everything to do with psychology. True, money serves to measure success - but it is an abstract meter, akin to monopoly money. It is proof shrewdness, wit, foresight, stamina, and insight.

Workaholics identify business with pleasure. They are hedonistic and narcissistic. They are entrepreneurial. They are the managers and the businessmen and the scientists and the journalists. They are the movers, the shakers, the pushers, the energy.

Without workaholics, we would have ended up with "social" economies, with strong disincentives to work. In these economies of "collective ownership" people go to work because they have to. Their main preoccupation is how to avoid it and to sabotage the workplace. They harbour negative feelings. Slowly, they wither and die (professionally) - because no one can live long in hatred and deceit. Joy is an essential ingredient of survival.

And this is the true meaning of capitalism: the abolition of the artificial distinction between work and leisure and the pursuit of both with the same zeal and satisfaction. Above all, the (increasing) liberty to do it whenever, wherever, with whomever you choose.

Unless and until Homo East Europeansis changes his state of mind - there will be no real transition. Because transition happens in the human mind much before it takes form in reality. It is no use to dictate, to legislate, to finance, to cajole, or to bribe. It was Marx (a devout non-capitalist) who noted the causative connexion between reality (being) and consciousness. How right was he. Witness the prosperous USA and compare it to the miserable failure that was communism.