THE PROGRESSIVE CONSERVATIVE, USA
An Online Journal of Political Commentary & Analysis
Volume IX, Issue # 245, December 28, 2007
Dr. Almon Leroy Way, Jr., Editor
Government Committed to & Acting in Accord with Conservative Principles
Ensures a Nation's Strength, Progress, & Prosperity
THE PALESTINIAN ECONOMY IN SHAMBLES
By Dr. Daniel Pipes
THE PALESTINIAN ECONOMY & THE ISRAELI-ARAB CONFLICT: THE EFFECTS & CONSEQUENCES OF WESTERN
FINANCIAL AID TO THE PALESTINIANS -- CORRUPTION & DISTORTION OF THE PALESTINIAN ECONOMY -- RUINING THE
ECONOMY BY SMOTHERING IT UNDER WELL-INTENTIONED BUT MISGUIDED DONATIONS -- HOW A FAILED PALESTINIAN
ECONOMY WILL ULTIMATELY AFFECT PALESTINIAN TERRORISM & DETERMINATION TO DESTROY THE STATE OF ISRAEL --
EXPLAINING PALESTINIAN EXTREMISM & VIOLENCE: THE HARDSHIP MODEL VERSUS THE EXHILARATION MODEL
FULL STORY:
Western financial aid to the Palestinians has the perverse and counterintuitive effect of increasing their rate of homicides,
including terrorist ones. I offer two pieces of strange news about the many billions of dollars and record-shattering
per-capita donations from the West: First, these have rendered the Palestinians poorer. Second, Palestinian
impoverishment is a longterm positive development.
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:
Palestinian per year per-capita income has contracted by about 40 percent
since its US$2,000 peak in 1992 (before the Oslo process began) to less
than $1,200 now.
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
LINKS TO RELATED TOPICS:
Foreign Aid -- International Economic Development
American Foreign Policy -- The Middle East
Israel & the Arabs -- The Israeli-Arab Conflict
Middle East -- Arabs, Arab States,
& Their Middle Eastern Neighbors
Islamism & Jihadism -- Radical Islam & Islamic Terrorism
Page Three
Page Two
Page One
International Politics & World Disorder:
War & Peace in the Real World
Page Two
Page One
Islamist Terrorist Attacks on the U.S.A.
Osama bin Laden & the Islamist Declaration of War
Against the U.S.A. & Western Civilization
Islamist International Terrorism &
U.S. Intelligence Agencies
U.S. National Security Strategy
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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THE PROGRESSIVE CONSERVATIVE, USA
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Dr. Almon Leroy Way, Jr., Editor
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