Israel’s economy: What if…?

It is becoming increasingly apparent that for all the complaints of the Palestinians, the Israeli government has made some genuine concessions in the secretive peace talks between the two sides. There have even been unconfirmed discussions with the Saudis.

For decades, one of the basic gripes of the Palestinian Authority has consistently been the argument that Israeli security measures have restricted the development of their economy. The rhetoric has been backed by a plethora of reports from the IMF et al.

In some ways, this is no brainer. If you block the free flow of peoples and materials, whether or not you may be stopping a suicide bomber or two, you are going to impinge on commercial growth. It is worth reflecting that the World Bank reported that the Palestinian economy under so-called Israeli occupation was one of the fastest growing in the world for decades become Chairman Arafat launched the Intifada in 2000. I suppose it would be interesting to calculate how much Palestinian people have lost financially in the name of violence.

Actually, there has often been a second level of economic criticism for the Palestinian leadership. While on the one hand, it quietly promotes the boycott campaign of Israeli products, tech, academia and art, it also demands that Israel does more to support its fledgling economy. A classic example is the need to replace Gaza’s dependence on Egyptian electricity.

The seemingly political-correctness of the boycott campaign masks the hypocrisy of the fact that it too acts as a barrier to encouraging trade between parties. Rarely has there been a more blatant case of the pot calling the kettle black. And there is a more deeper, and conveniently hidden, question. How much has Palestinian hatred towards Israel cost the Israeli economy?

Two starting points: First, since 2001, Israel’s Finance Ministry has had to invest heavy resources to combat an Intifada, defend itself against incursions from Gaza, fight a war in Lebanon, protect itself against a nuclear Iran, and fight off a global recession. For all that, average annual GDP growth has been around 4%, impressive by any standard. Second, before the Intifada, it is estimated that around 125,000 Palestinians secured regular daily work in Israel. Today, that figure has ‘climbed back’ to around 40,000. So, not just theoretically, Palestinains will be better off by ‘cooperating’ with Israel.

The New Yorker Magazine recently estimated how much Israel has surrendered in lost economic potential because of the existential threat it faces. The journal quotes an economic model from Yusaku Horiuchi and Asher Mayerson, who asked what would have happened if Chairman Arafat had accepted Barak’s proposals in 2000 at Camp David. (It would appear that much of this offer is still on the table today via John Kerry!)

Cumulatively, from 2001 to 2010, Israel’s per capita G.D.P. was $25,513 less than that of synthetic Israel’s. ….For an Israeli family of four, even after income taxes, it might have meant a down payment on an apartment, a college education for a child, or a couple of new cars…..Because tax rates in Israel are generally around forty per cent, there are implications for the government, too: based on conservative estimates (assuming, for instance, that only a third of the revenue goes to taxes), the lost G.D.P. could amount to nearly sixty billion dollars going to the government—a big proportion of the country’s annual budget.

This week, Israel announced that it would help to fund a project to build a water pipeline from the Red Sea to the Dead Sea, which will jointly benefit Jordan and the Palestinians territories. Just think how many other co-infrastructure projects – schools, hospitals, roads – could have been funded if violence had not forced a different turn of events?

About the Author
Michael Horesh is a recognised business coach and mentor, and has helped clients collectively to create millions in added value over the past decade. He has substantial understanding of the workings of the Israeli economy and the financial situation of the Palestinians, as well as an incisive way of looking at Middle East issues.