THE PALESTINIAN ECONOMY IN SHAMBLES
By Dr. Daniel Pipes
To begin, some basic facts about the Palestinian economy, drawing on a fine survey by Ziv Hellman, "Terminal Situation," in the December 24, 2007, issue of the Jerusalem Report:
Per-capita Israeli income, 10 times greater than the Palestinians' in 1967, is now 23 times greater.
Deep poverty has increased in Gaza from 22 percent of the population in 1998 to nearly 35 percent in 2006; it would be about 67 percent if not for remittances and food aid.
Direct foreign investment barely exists, while local capital mostly gets sent abroad or is invested in real estate or shortterm trading.
The Palestinian Authority economy, Hellman writes, "is largely based on monopolies in various industries granted by PA officials in exchange for kickbacks."
The PA's payroll is so bloated that the cost of wages alone exceeds all revenues.
A dysfunctional judicial system in the PA means armed gangs usually decide commercial disputes.
Unsurprisingly, Hellman characterizes the Palestinian economy as "in shambles."
Such shambles should come as no surprise, for, as the late Lord Bauer and others have noted, foreign aid does not work. It corrupts and distorts an economy; and the greater the amounts involved, the greater the damage. One telling detail: at times during Yasir Arafat's reign, a third of the Palestinian Authority's budget went for "expenses of the President's office," without further explanation, auditing, or accounting. The World Bank objected, but the Israeli government and the European Union endorsed this corrupt arrangement, so it remained in place.
The Paris conference for the "Palestinian state" raised US$7.4 billion in pledges on December 17, 2007. © V.Chemla/GIN
Indeed, the Palestinian Authority offers a textbook example of how to ruin an economy by smothering it under well-intentioned but misguided donations. The $7.4 billion recently pledged to it for the 2008-2010 period will further exacerbate the damage.
Paradoxically, this error might help resolve the Arab-Israeli conflict. To see why, consider the two models, hardship v. exhilaration, that explain Palestinian extremism and violence.
The hardship model, subscribed to by all Western states, attributes Palestinian actions to poverty, isolation, Israeli roadblocks, the lack of a state, etc. Mahmoud Abbas, the PA leader, summed up this viewpoint at the Annapolis conference in November, 2007: "the absence of hope and overwhelming despair … feed extremism." Eliminate those hardships and Palestinians, supposedly, would turn their attention to such constructive concerns as economic development and democracy. Trouble is, that change never comes.
The exhilaration model turns the Abbas logic on its head: the absence of despair and overwhelming hope, in fact, feed extremism. For Palestinians, hope derives from a perception of Israeli weakness, implying an optimism and excitement that the Jewish state can be eliminated. Conversely, when Palestinians cannot see a way forward against Israel, they devote themselves to the more mundane tasks of earning a living and educating their children. Note that the Palestinian economy peaked in 1992, just as, during the immediate post-Soviet Union and post-Kuwait war period, hopes bottomed out regarding success in the drive to eliminate Israel.
Exhilaration, not hardship, accounts for bellicose Palestinian behavior. Accordingly, whatever reduces Palestinian confidence is a good thing. A failed economy depresses the Palestinians' mood, not to speak of their military and other capabilities, and so brings resolution closer.
Palestinians must experience the bitter crucible of defeat before they will drop their foul goal of eliminating their Israeli neighbor and begin to build their own economy, polity, society, and culture. No short-cut to this happy outcome exists. Who truly cares for Palestinians must want their despair to come quickly, so that a skilled and dignified people can move beyond its current barbarism and build something decent.
The huge and wasted outpouring of Western financial aid, ironically, brings on that despair in two ways: by encouraging terrorism and by distorting the economy, both of which imply economic decline. Rarely has the law of unintended consequences worked so imaginatively.
© Daniel Pipes 2007
Originally Published in the Jerusalem Post, December 27, 2007
Republished with the Permission of Daniel Pipes
Reprinted from the Daniel Pipes Mailing List, December 27, 2007
Article URL: http://www.danielpipes.org/article/5300
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Dr. Daniel Pipes, a Ph.D. in Islamic History (Harvard University, 1978), is the Founder and Director of the Middle East Forum, the Founder of Campus Watch, a signatory of the Project for the New American Century, a former board member of the U.S. Institute of Peace, a former adjunct scholar at the Washington Institute for Near East Policy, a Golden Circle supporter of the U.S. Committee for a Free Lebanon, a former member of the U.S. Department of Defense Special Task Force on Terrorism and Technology, and a former lecturer at the U.S. Naval War College, Harvard University, the University of Chicago, and the University of Pennsylvania. Dr. Pipes was the Director of the Foreign Policy Research Institute from 1986 to 1993.
Author or co-author of eighteen books, Dr. Pipes is a regular columnist for Front Page Magazine, the New York Sun, and the Jerusalem Post. His analyses of world trends and of forces and developments in the Middle East have appeared in numerous North American newspapers, including the Washington Post, the New York Times, and the Wall Street Journal. He frequently appears on American network television, as well as at universities and think tanks, to discuss the Middle East, Islam, and the Islamist threat to the U.S.A. and the West. He also has appeared on BBC and Al Jazeera, and has lectured in approximately twenty-five countries.
Dr. Pipes is a Polish-American Jew whose parents fled Poland in 1939, immigrated to the U.S.A., and assimilated well into
American society and culture. His father is Richard Pipes, an American historian specializing in Russian and Soviet history
and serving as Professor of History at Harvard University from 1950 until his retirement in 1996. During the Cold War, the
worldview of Richard Pipes was strongly anti-Soviet and anti-Communist.
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