A war economy?

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Judging by the economic indicators, Yasir Arafat and his colleagues in the Palestinian leadership plainly did not plan in advance or even anticipate the outbreak of the bloody confrontations that came to be known as the al-Aqsa Intifada. The most striking indicator is the billions of dollars invested by the Palestinians in tourism enterprises toward the year 2000–the year that produced the Intifada.

In the ambitious “Bethlehem 2000” project alone that climaxed in the visit of the Pope to Bethlehem, more than two billion dollars were invested. New and luxurious hotels were built in the city of Jesus’s birth, along with a modern bus terminal and a conference center; infrastructure for various services was installed and hospitality and entertainment centers were opened. Similar investments in tourist projects were made in Jericho, Ramallah and even Gaza. A large portion of the funding for these projects came from external sources, from the countries that contributed to the Palestinian Authority. But large private and public investments were also made by the Palestinians themselves.

Needless to say, the tourism industry is the most sensitive of all to security events. In other words, whoever invests such huge sums in tourism not only is not planning violent events, but indeed does not even imagine that something like a war is about to break out. Thus we can state unequivocally that the economy of the Palestinian Authority in its short duration (1994-2000) was built as a peace economy.

There are other aspects of the Palestinian economy that offer an explanation of sorts for the outbreak of the Intifada. A brief survey of the development of the Palestinian economy should also explain why so much attention is now being paid to the corruption rampant within Palestinian institutions.

The Oslo agreement of September 1993 was signed at a time when a degree of separation was developing between the Palestinian economy in the West Bank and Gaza and the Israeli economy. Following the Israeli occupation of the territories, and in the course of over 20 years, near total integration was instituted between the economies of the Palestinian territories and Israel. Relations between the small and relatively backward Palestinian economy and Israel’s large and modern economy were completely asymmetrical.

It was Israel’s minister of defense during the 1967 war, Moshe Dayan, who presided over the process of integrating the two economies, based on the free passage of goods between them. This generated the near total dependency of the Palestinian economy on that of Israel. Its main feature was the employment in Israel of half the Palestinian work force. Masses of laborers from the Gazan refugee camps and the villages of Judea and Samaria commuted daily to Israel to work in construction, agriculture, services and industry. This generated a process of rapid economic growth in the West Bank and Gaza. In 1986, some 20 years after the territories were occupied, Palestinian per capita income had reached 22 percent of that in Israel. In other words the Palestinians’ economic situation, relative to Israel’s, increased significantly during these years, and their income began to close the gap with incomes in Israel.

It was in the course of the crisis generated by the Gulf War of early 1991 that closures were first imposed on the territories. But the dramatic change in the relationship between the economy of the territories and that of Israel came about with the Oslo Agreement and the establishment of Palestinian autonomy. Palestinian laborers could no longer enter Israel freely. Closure became a permanent matter of principle. Instead of integration between the two economies, rules of economic separation were developed against a backdrop that was both political and security- motivated.

The establishment of Palestinian rule on the West Bank and in Gaza was accompanied by great expectations for economic growth. The ensuing disappointment was equally great. Separation from Israel through closure generated high rates of Palestinian unemployment. Tens of thousands of Palestinian workers stood beyond the fences and the roadblocks and pondered how the peace process had created a situation whereby guest workers from Rumania, China and Thailand were taking their places.

Following the Oslo Agreement, large sums of money flowed to the Palestinian Authority to finance national projects involving tourism, communications industries, an airport at Rafah, the first stages of constructing a seaport at Gaza, and offshore gas production. But this could not replace sources of employment in Israel. Only the Palestinian ruling elite benefited financially. Senior PA officials also received benefits from Israel: free passage at roadblocks and concessions for advancing commercial projects and monopolies.

The Gazan and West Bank lower classes became poorer and poorer. In 1998, four years after Palestinian rule was established, per capita income in the PA had dropped back to a low of 10 percent vis-é-vis that in Israel. The Palestinian economy had been set back some 20 years.

Widespread instances of corruption and waste within PA institutions also emerged. Even more important was the impression that these phenomena made on the masses of unemployed and poor. A critical crisis of confidence developed between them and the ruling elite. Bitterness and jealousy generated endless stories and gossip about the luxurious life of those enjoying the privileges of rule at the expense of the suffering of the masses. These socioeconomic circumstances played a key role in the outbreak of the Intifada, and continue to exercise decisive influence on the widespread demands for reform and elimination of corruption within the ruling institutions of the Palestinian Authority.

Danny Rubinstein is a member of the Editorial Board of Haaretz. He specializes in Palestinian issues, and lectures in the Department of Middle East History at Ben Gurion University in the Negev.

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