The Real Hope Of Economic Peace
Everybody knows the core issues between Israelis and Palestinians, except for the one that will matter the most and can be acted on immediately, before any comprehensive deal; the one where Israel's concessions will not compromise its security but enhance it. I am speaking of Palestine's economy, specifically, its private sector, the driver of civil society and spine of any future state. Israeli Prime Minister Benjamin Netanyahu talks about "economic peace," but seems to mean little more than giving Palestinian laborers more jobs in Israeli agriculture and construction projects. What Palestinians need, rather, are entrepreneurs, managers, and professionals with the freedom to build a growing node in an urban and global network. The latter have made a remarkable start, but the occupation is thwarting them in ways few outsiders appreciate.
Yes, land claims, especially the division of sovereignty in Jerusalem, compensation for Palestinian refugees, etc., have great symbolic importance to both peoples. Yes, Jewish settlements confound efforts to draw borders and should be frozen; yes, moderates on both sides confront "whole land" fanatics they would rather not fight for the sake of the other side. Still, if we ever get to a deal, the size of each territory will quickly seem trivial.
Israel and Palestine, together, are about the size of greater Los Angeles; the distance from Nablus to Tel Aviv is something like San Bernardino to Santa Monica. The West Bank and Gaza, Palestinians say, is only 22 percent of historic Palestine. But that is about the size of the territory most Israelis live on. In fact, the corridor from Ashdod to north of Tel Aviv--where 40 percent of Israelis live, and at least half of Israel's GDP is generated--is about the size of the Gaza Strip. Can we get real about what "two states" will look like?
Each side will be a culturally distinct city-state, building upwards, integrated with the other in a business ecosystem extending to Jordan, and sharing everything from water to currency, tourists to bandwidth. Over 80 percent of Palestine's trade is with Israel. What won't seem trivial is the capacity of Palestine's economy--currently one-fortieth of Israel's--to create employment. The mean age of Palestinians in the territories is about 19 years old. If we assume normal rates of growth, and the return of only half of the refugees to a Palestinian state, Palestine would soon become an Arabic-speaking metropolis of perhaps 6 million to 7 million people, radiating east from Jerusalem, and facing off against the Hebrew-speaking metropolis, anchored by Tel Aviv. Olive groves, picturesque as they are, will seem beside the point. So will military notions like strategic depth.
The good news is that the Palestinian private sector, though small, is prepared for a take-off. There is a tight-knit, highly competent Palestinian business class already running enterprises from pharmaceuticals to supermarkets, telecommunications to software solutions. Palestine's billion dollar sovereign wealth fund, the PIF, has been investing strategically in construction and wireless telecommunications; it is transparently run by Mohammed Mustafa, a former World Bank official, close to Prime Minister Salaam Fayyad--in effect, the Ramallah bourgeoisie's chairman of the board. The Palestinian stock market lists companies worth only about $2.5 billion, but it has been growing at over 20 percent a year. Palestinian universities graduate 1,200 computer scientists annually.
The Palestinian Authority gets about $2 billion from donor countries a year, a large portion of it wasted on patronage jobs. Part of what has stifled entrepreneurship is old Fatah cadres running monopolies from cement to petroleum. But public sector salaries, along with remittances from family members working abroad, at least wind up in bank deposits. Bank of Palestine CEO Hashim Shawa estimates that about $6 billion in total deposits are available for investment in genuinely competitive ventures. At least twice that amount is in Palestinian-controlled banks in Jordan. Regional investors know Palestinians are relatively well educated and need one of everything.
Which brings us to the bad news. Revealingly, Palestinian banks have been unable to lend more than $1.5 billion to credit-worthy business plans. For when you look at all of the things an ordinary businessperson takes for granted--mobility, access to markets, talent, suppliers and financial services--you see the frustrating effects of an occupation designed to advance the settlers, not Palestinian development.
Problems of mobility are most widely reported: over 60 percent of land in the West Bank is so-called Area C--controlled by the Israeli army to secure Israeli settlements, but turning Palestinian cities into economic islands. Try growing a supermarket chain when your just-in-time logistics system has to deal with 600 roadblocks; try planning meetings to open a new store. The drive from Ramallah to Jerusalem should take about 12 minutes, but with the checkpoints, it's normally an hour, and that's if you have permission. A Palestinian businessman routinely waits a half day just to collect an Israeli permit to enter Jerusalem and begin the journey. The World Bank estimates that, in spite of a projected 6-7 percent growth, per capita GDP is falling and unemployment may be as high 20 percent.
But other problems are just as serious. Businesses need world-class managers, who have to be able to travel freely. Entrepreneurs from the Palestinian diaspora, if born abroad, have to fight for years to get residency permits. The handful who succeed cannot then use Ben Gurion Airport or come to Jerusalem, but suffer the same restrictions as locals. Components for Palestinian manufacturing are routinely held up in Israel ports, waiting for long security checks. (One Palestinian aluminum window manufacturer, denied a coating material that could be used to make explosives, offered to pay for IDF soldiers to supervise the entire process.) Palestinian banks cannot park their cash reserves in Israeli banks, losing tens of millions of dollars in interest. They also cannot set up branches or even ATMs in East Jerusalem, where unemployment is over 25 percent and 50 percent live under the poverty line.
I visited Ramallah's $350 million Palestinian cell phone company, Jawwal, now facing real competition from the PIF-funded Wataniya. The CEO, Ammar Aker (recently promoted to run the $900 million parent company, Paltel), took me to the roof of his modern building and showed me what he sees. On one hill to the north is a settlement in Area C brandishing the tower of an Israeli operator, Cellcom. To the south is another settlement with another tower. Cellcom gets about 10.5 megahertz of spectrum; Jawwal about 4.8 (spectrum, too, is a "security" asset). To get 3G and continuous coverage--what every Palestinian entrepreneur needs--you need to add a plan from an Israeli carrier.
Prime Minister Netanyahu has been bragging about Palestine's growth. But under current conditions, the resilience of its private sector seems little short of heroic. Surely, he must know there are things that must be done now. Israel should be inviting, not prohibiting, Palestinian entrepreneurs to come to the West Bank and invest. It should be greatly expanding the number of permits for businesspeople to come to Jerusalem. It should be allowing banks to operate here, thus stopping the city's brain drain to Amman and Dubai. It should be assigning security forces to work with PA forces to expedite Palestinian supply chains. It should be authorizing the development of a secure, north-south transportation corridor linking Palestinian cities, perhaps picking up on the Rand Corporation's brilliant idea of an "arc" of bus and rail lines. It should be releasing more bandwidth for Palestinian telecom, and restricting Israeli competition in Area C.
Netanyahu could do all of this today without endangering Israelis or even removing settlers yet. With so many Palestinians under 20, the economic disparities so great, and the territory so small, what can be more dangerous than continued stagnation?
Netanyahu bragging about Palestine's economic growth is like P.W. Botha bragging about black entrepreneurship in Apartheid South Africa. Netanyahu has no shame.
March 9, 2010 11:59 AM | Reply | Permalink
Sorry again to ruin your article
But there is too much BS in one article
Between 67 to 1987 (First Intifada) - under the so called "occupation" - The Arabs in the west bank & Gaza had one of the best economies in the middle east (The economy growth every year about 10 %)
Most of the Palestinians workers work in Israel , They were the most educated one among the Arabs compare to the "FALAHIM" in Egypt , Jordan
BUT what this self-destruct Arabs did ? Begin violence , What the did in 2000 ? Begin violence
MR Avishi you are too much intellectual spending his time in air conditioned lecture halls and less connected to the ground (Probably the only arab you saw in your life was probably the "Nice & educated arab" in some conferences or in TV.
The Arab mentality and state of mind are different : The Arabs need a dictator & king to govern them to tell them what to do and to control their money , without that : they are gone crazy: they can't live in democracy & free economy , see what happen in Iraq : After the Americans try to give them : prosperity & democracy : they start to kill each other , see Lebanon - In the 60's Lebanon was the Switzerland of the middle east , Today it's Hizbullastan ,
March 9, 2010 2:50 PM | Reply | Permalink
" The Arabs need a dictator & king to govern them to tell them what to do and to control their money , without that : they are gone crazy"
Sigh. Your analysis is as correct as your grammar.
March 9, 2010 3:10 PM | Reply | Permalink
Yes, land claims, especially the division of sovereignty in Jerusalem, compensation for Palestinian refugees, etc., have great symbolic importance to both peoples.
People can't invest in their economic futures if they can't govern themselves and provide basic security for their property rights and interests.
If I'm a Palestinian entrepreneur or investor, why would I pour substantial quantities of sweat and cash into a business venture when some thieving Israeli can just come in and take it away from me at some undefined future point with the full blessing and backing of the governments of Israel and the United States?
March 9, 2010 8:17 PM | Reply | Permalink
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December 16, 2010 3:44 AM | Reply | Permalink
Sorry about the extra italics. The first paragraph above is Bernard's.
March 9, 2010 8:18 PM | Reply | Permalink
Good, informative post, free of the usual hysterics that characterize the discussion. I support Avishai's vision and admire his efforts on the ground to bring it to fruition.
But at the risk of stirring up the usual hysteria, there is some historical perspective lacking. Please correct me if I'm wrong, but as I understand it, many, if not most of the restrictions Avishai mentions were imposed after Israel re-occupied the West Bank following the Second Intifada (which itself was launched after Israel offered to withdraw from nearly all the territory). I don't doubt that many of these measures are punitive and unnecessary, but many also were imposed to save Israeli lives.
So no, it's not accurate to say that "land claims, especially the division of sovereignty in Jerusalem, compensation for Palestinian refugees, etc., have great symbolic importance to both peoples." It's not mere symbolism; despite Avishai's best intentions, it's still the heart of the dispute. And it's also inaccurate to say "compensation" for refugees. No Palestinian leader with any authority has ever even entertained the notion of "compensation." It's always been about the return of all refugees, in other words, the existence of a State called Israel.
March 9, 2010 10:08 PM | Reply | Permalink
This is incorrect, a host of Palestinians agreed in the 2003 Geneva framework that compensation could effectively substitute for return of at least some Palestinians with ancestral claims in Israel proper. A myth ripe for busting pretends otherwise.
March 10, 2010 3:42 PM | Reply | Permalink
AG - Don't kid yourself. Prior to the second infitada there were plenty of roadblocks and other impediments to the Palestinian economy. Until Wye River and the institutionalization of Area A, it was next to impossible get Israeli permission to start a significant Palestinian business.
The Palestinian economy was much better back then only because the number of Palestinians working in and for Israel was larger. I remember back in the 80's and 90's, the Israeli fear of competition from Palestinian businesses and the desire to limit them so Israel would have a continuous supply of cheap labor.
As far as the right of return goes, everyone knows(arab,israeli, palestinian etc) that a complete return is impossible. That's why the Arab Peace Initiative uses the term "To accept to find an agreed, just solution to the problem..." At Taba, both parties struggled with a solution but the sides were discussing which refugees stay in host countries, which go back to the new Palestine and compensation.
The Geneva Accords(which the leadership of both Palestine and Israel followed very closely) similarly made the right of return very limited. Discussions leading to the Clinton Parameters used numbers for returning refugees in the area of 30,000-50,000, ie token face saving measures.
The right of return is the sole Palestinian bargaining chip and they are not about to give that up while Netanyahu talks about keeping the Ariel corridor, the Jordan Valley etc.
AG - Unless someone stops Israel, the right wing plan to put Palestinians on fenced in reservations will be implemented. The mood in Israel right now is giddy. They can continue to provoke to see if the US or the rest of the world will draw a line. If Israel doesn't see any stop signs (so far there is none)another 5-10 years and the revised Allon plan will be implemented.
March 10, 2010 9:07 AM | Reply | Permalink
Of course, your response is "hysterical" because it doesn't put all the blame on the Palestinians or allow every Isreali negative action to be characterized as "an unintended consequence of a good faith effort." When Palestinians sin, it's their fault. When Israeli sin...well, it's complicated.
That's AG's real beef with the "hysteria." It doesn't presume non-existent Israeli good will. Matt Groening summed up this attitude in one of his early "Life is Hell" cartoons: "Mistakes were made...."
March 10, 2010 11:55 AM | Reply | Permalink
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