Economic Issues

Defeating Dependency, Creating a Resistance Economy

In an important recent piece - Economic Hallucination - Ramallah-based Al-Shabaka policy advisor Sam Bahour exposed the charade played by both Western donors and the Palestinian Authority (PA) to cover up the occupied territory’s inexorable economic meltdown after decades of Israeli military occupation. Arguing that the combined donor-PA approach poses major obstacles to freedom and rights, Bahour concluded: “It’s time for a new economic model, one built on economic justice, social welfare, solidarity, and sustainability.” What would such an economic model look like and how can Palestinians living under occupation move from today’s grim reality to an economy that sustains the quest for self-determination? Al-Shabaka policy advisors Alaa Tartir and Samer Abdelnour join Bahour to debate these questions and explore alternatives.

Needed: Tools to Communicate the Socioeconomic Reality

The Gaza Strip has often been described as a large prison and, indeed, Israel’s siege makes it impossible to portray it as anything else. The West Bank, including East Jerusalem, is also a prison: its entire Palestinian population, from the PA president (whose VIP status was recently downgraded by Israel to a two-month travel permission) to day laborers, are forced to rely on Israel for freedom of movement and access. Israel directly or indirectly controls all Palestinian economic resources. Furthermore, 60% of the West Bank, classified as Area C under the Oslo Accords, is completely off limits to Palestinian development. Yet these West Bank realities are masked by talk of economic “growth” of as much as 9% a year, impressive institution building, and a booming stock market. This harmful narrative is both a result of “people-blind” macro-economic measures and political propaganda that effectively normalizes the occupation-PA-donor status quo.

As Jeremy Wildeman put it in an article on the delusions of a Palestinian economic miracle, “The crippling truth is one of poverty, personal insecurity and protracted economic decline… [only serving] to distract the world from implementing difficult solutions to the real problems.” How difficult are those problems? Rashid Khalidi went to the heart of the issue when he asked how “the settlement-industrial complex” would be uprooted – a complex that stretches beyond the 600,000 settlers living in the occupied West Bank and East Jerusalem to encompass the “hundreds of thousands in government and in the private sector whose livelihoods and bureaucratic interests are linked to the maintenance of control over the Palestinians".

It should be noted that even those reports that speak glowingly of Prime Minister Salam Fayyad’s institution-building efforts cannot completely escape the truth. Multiple reports by the World Bank, International Monetary Fund, and the European Union, admit that the private sector cannot operate due to the restrictions of the occupation and the shrinking of the Palestinian productive base. One 2010 World Bank report went so far as to say that Israel’s “apparatus of control” had “become more sophisticated and effective in its ability to interfere in and affect every aspect of Palestinian life, including job opportunities, work, and earnings… [turning] the West Bank into a fragmented set of social and economic islands or enclaves cut off from one another.”

Although neo-liberal economic policies accelerated under Fayyad brought wealth and spending power to small segments of the West Bank, this was doomed to be a temporary phenomenon. That has now been replaced with spiraling costs and deficits that the Government is seeking to address through the same kind of austerity measures – public sector downsizing, higher taxes, and reduced incentives for investments – the same kinds of policies imposed upon many developing countries.

Economist Raja Khalidi questioned the applicability of structural adjustment policies to the Palestinian context in a recent article, noting that longstanding financial problems in the OPT have nothing to do with structural problems that can be “adjusted.” Rather, they are the direct result of the occupation. In addition to the volatility of the tax base and the vulnerability of the level of economic activity to the Israeli closure policy and recurrent military confrontations, Israel has full control over the tax and customs clearance revenue that it collects on behalf of the PA. As a report by the UN Conference on Trade and Development (UNCTAD revealed, imports produced in a third country and re-exported to the territories as if they were produced in Israel (indirect imports) cause losses of $480 million USD per year - almost 25% of public revenues, 10% in lost gross domestic product (GDP) and 30,000 jobs per year. The PA’s moves are leading to widespread protests against what has been termed “Fayyadism” and the neo-liberal policies it represents.

Among the challenges for Palestinian economists and analysts are: Which tools and measures might be used or developed to more effectively communicate the reality of the Israeli occupation, from the mundane to the catastrophic in both human and economic terms. For example, is it viable to deduct from rather than add to GDP the costs of construction or consumption related to checkpoints and other forms of mobility restrictions (i.e. jobs to construct roads, extra fuel and transportation services) as well as other costs of the occupation? Similarly, when a student from Gaza cannot study in Birzeit or a person is imprisoned for months or years without charge, what is the negative cost to the Palestinian economy? Such realities do impact Palestinian socioeconomic well-being yet are much more difficult to measure than the cost of expropriated land and resources - which also require measurement in terms of lost socioeconomic, human, and political value. ARIJ, the Applied Research Institute-Jerusalem, estimated that the total measurable cost of the Israeli occupation on the Palestinian economy in 2010 was $6.897 billion, a staggering 84.9% of the total Palestinian GDP in 2010.

There is a need for new measures to factor in not only the cost of the occupation but also the costs of corruption. National and international institutions like the Bisan Centre for Research and Development, ARIJ, the Center for Development Studies at Birzeit University, UNCTAD and the Rosa Luxemburg Foundation do important work and can help to further develop accurate tools for quantifying, and analyzing such costs. It is also important to openly disseminate and discuss these costs widely and build consensus around their findings and potential actions.