Clientelism, Cronyism, and Job Creation in Lebanon

This chapter, which is based on Diwan and Haidar (2017), looks into a country case where clientelism, rather than an attempt to exclude politically suspect firms from the marketplace, is likely to be the driving political force behind the tight relations connecting politicians and some firms. Our main interest is to evaluate the impact of clientelism on job creation. Paradoxically, while much of the discussion about clientelism in Lebanon concerns the influence of political patrons in helping secure jobs—public but also private—for their political clients, the country also has a very high emigration rate among its educated youth. In seeking to resolve this paradox, our core hypothesis is that clientelism in Lebanon may create extra jobs in particular firms, but that in the aggregate and on a net basis it destroys jobs. After a review of the evolution of the state–business relationship in the recent political economy of Lebanon, we summarize the micro foundations of employment growth in Lebanon. Then, we document whether political connections affect job creation at the firm and sector levels. Depending on Diwan and Haidar (2017), we do so using a unique dataset which includes all registered (and thus formal) firms at the Lebanese Ministry of Finance which provides yearly information between 2005 and 2010 on firms’ employment and output. We are able to identify among these firms a sub-group with political connections by comparing their characteristics with the firms identified in the Lebanese Commercial Register.