Pride Vs. Free Ride and the Dollar Crisis Dilemma
Opinion Economic Analysis by Gaelle Nohra, Staff Writer
October 11th, 2020
Amidst the national challenges supervening now and then, would you believe that Lebanon remains a fertile ground for hidden benefits and positive externalities?
Externalities refer to the costs and benefits affecting a third party who did not choose to incur those costs and benefits. This article will examine the presence of one type of positive externality resulting from the dollar crisis, known as the free-rider problem, and further depict its dilemma-like nature.
What is the Free-Rider problem?
The free-rider reflects upon an inefficient distribution of goods and services resulting when some individuals consume more than they’re allowed to from a shared resource without contributing to it. A group project where one person takes charge of the entire workload and all other members end up getting the same grade is a simple example of free-riding.
Free-riding is labeled as a market failure as it entails positive externalities on non-contributing parties.
That said, there are specific conditions to be met in order to confirm the presence of a free-rider problem in a certain situation. Primary conditions revolve around the non-excludability and non-rivalry of the resource in question. Everyone can consume as much as they wish and cannot limit the consumption of others. Second, the resource is not natural in the sense that its provision is not granted or free, instead it requires a certain cost to be paid.
Another example of free-riding could be illustrated as follow, suppose individual X comes up with the initiative of hanging lamps in the common garden of the residence he lives in so that he or any other neighbor could organize late-night parties at any time they wish without having to rush and rent lamps at the last minute. But since he can’t afford its cost alone, he suggests the idea to his 8 neighbors. Assume that 7 out of the 8 agree to contribute by paying a share of the total cost and individual X finally manages to purchase the lightings. The problem is that the individual that refrained from paying can’t be prevented from benefitting from the lighting of the lamps even if he had zero contributions when buying them. The garden is a common good among the building residents, as clearly stated in the purchase contract, in contrast to the lamps whose benefit can’t be legally separated.
Here we will question to what extent could fresh-dollar earners residing in Lebanon at the moment, be attributed as free-riders? Before proceeding, we need to frame the free-rider problem in the context of the Lebanese economic crisis.
The elements of a free-rider problem consist of a good and of an audience. The good could be a shared resource, an event, a discovery, or anything abiding to the non-excludability and non-rivalry conditions. The audience could be broken down into contributors and non-contributors, where the latters benefits at the expense of the formers. In our case, we will address the Lira devaluation as the event and the Lebanese community as the audience where fresh-dollar earners are the non-contributing parties. The term ‘contributing’ here doesn’t designate a situation of giving, paying, or offering as much as it reflects upon a state of burden-sharing.
The COVID-19 outbreak did not just induce a global shift towards remote working, but shed light upon the overestimated role our physical presence in the workplace, especially among business industries. Recent studies led by the world’s leading research company Garner with 317 CFOs, revealed that over 74% [i]are seriously considering shifting their on-site workforce to remote positions. Aside flexibility, distance-working helps getting rid of some inefficient rituals such as illness absences as well as long and costly business travels.
All these changes were progressively translating into the daily workflow of Lebanese expats who, thanks to COVID, were brought back to their native country where their virtual work along with their end-of-month remunerations - fresh dollar earnings- weren’t severely disrupted.
While recent national occurrences ranging from regional tensions to the August 4th explosion pushed many to leave, this analysis will exclusively address the case of those who chose to stay.
From 1,507 to circa 8,400 LBP as of writing, the lira devaluation expanded the set of economic opportunities available for these international employees, which is precisely why we assigned them to the non-contributing category. The soaring exchange rate, exacerbating the financial status of the rest of the Lebanese community, made fresh-dollar earners better-off not just by strengthening their market bargaining power[ii], but by further boosting their incentives to take part of the economic cycle (consuming, producing, investing) and turning their liquidity into tangible assets and properties in the real estate market. According to Lebanon’s Central Bank data, the real estate sector was the only one that witnessed a growth in activity of over 137.5% [iii]in 2020.
One could counter-argue the upward statements by referring to the current and ongoing inflation. While it is true that for some goods the purchasing power hasn’t boomed, it also didn’t escape a positive slope. Simply put, the 500$ that used to make 750,000 LBP is now worth more than 4,000,000 LBP, and even though this very last number isn’t reflective of the value it used to hold one year ago, it remains more than five times larger than 750,000 LBP.
But how fair could the ‘Free-Rider’ attribute be?
Not to deny the positive externalities, these same free-riders are breathing life into the economic cycle through the simple transactions they do on a daily basis, as well as the job opportunities they’re offering to the Lebanese workforce. Dollar injections at the moment, when heading straight to the market and being circulated, are crucial catalysts to the country’s growth as they revitalize production and investment by mobilizing human resources, allowing the provision of production inputs, pushing forth SMEs and local businesses and bringing down its 80% level of imports.
So if you’re a fresh-dollar earner, between hiding your 50$ so that others don’t feel embarrassed, or excitingly handing it to the cashier, the dilemma is real. Guilt and pride are non-separate feelings you can go through, because if you consider an inconvenience for others an opportunity for you to reap some benefits, you’re also proudly contributing to your country in the most needed, helpful and prestigious way.
[i] The future of remote work after COVID-19 3 common predictions, eko, August 14th 2020. Retrieved from https://www.ekoapp.com/blog/the-future-of-remote-work-after-covid-19-3-common-predictions
[ii] The power one has when trying to exert influence over someone else in a decision-making.
[iii] Revealed: how real estate is shining through Lebanon’s economic gloom. Arabian Business. September 26th 2020. Retrieved from https://www.arabianbusiness.com/banking-finance/452271-revealed-how-real-estate-is-shining-through-lebanons-economic-gloom