Challenge no.58

The Bluff of Economic Separation

Before flying to Oslo in early November for a summit with President Bill Clinton and Chairperson Yasser Arafat, Prime Minister Ehud Barak made several pointed pronouncements indicating his preference for economic separation between Israel and the Territories. The idea is by no means new. It was a pillar of his election campaign. Just as Rabin, in 1992, spoke of "taking Gaza out of Tel Aviv," so Barak coined the slogan: "We here, them there." The Palestinian Authority (PA) is in no position, of course, to come out publicly against such a statement, since it is supposed to desire independence from Israel. Nonetheless, there is no want of Israelis and Americans who have spoken against the idea.
In fact, we should not take Barak's pronouncements too seriously. In the reality created by the Oslo agreement, economic separation is hardly feasible. First, there are plain "facts on the ground". Until 1997, when hi-tech began to power Israel's exports, the Palestinian market was Israel's biggest after the US. (In 1995, for example, Israel exported goods and services worth $5.7 billion to the US; to the Palestinian territories, $2.2 billion; to Great Britain, $1.1 billion; to Germany $1 billion; to Japan $1.3 billion.) The Palestinians still compete for the number-two spot with hi-tech importers such as Belgium, Great Britain, and Germany. But their market does not import Israeli hi-tech. Instead, it takes in food, shoes, and textiles - products that keep plenty of poor Israelis in jobs. The loss of the Palestinian market would bring an increase in the already high unemployment among Israel's weakest. NOTE 1
But that is not the main reason for the interdependence of the two economies. The main reason is political.

To begin with the Israeli side:

Since the mid-eighties, the country's economists have known that globalization was the order of the day, and in order to be part of it - since foreign investors abhor instability - Israel would have to normalize its relations both with the Palestinians and the wider Arab world. This assumption was confirmed in 1995, about a year after the signing of the Oslo agreement, when foreign investment climbed by 46% over the previous year and then kept climbing, leveling off only in 1998 amid a stalled "peace process", global economic crisis, and a local downturn. From 1993 until 1997, Israel's exports increased at an annual average of 9.2%. Even in 1998, while everything else slipped, hi-tech exports - one third of the total - grew by more than 15%. NOTE 2
Israel is still looking for its economic breakthrough, but the guiding principle remains: To take part in the global economy, it must have stability in its own backyard. It cannot afford to let the Palestinians become too desperate.

The economic price of Israel's security demands

In the permanent-status talks, Israel will insist on keeping absolute control over the passages in and out of the Palestinian areas. This includes border crossings on land and sea and in the air. "Control over the external envelope is vital to the Oslo strategy," writes Meron Benvenisti in Ha'aretz (October 14). If the Palestinians have the final say even at a single crossing - and are able thus to maintain direct relations with the outside world - anyone or anything could then come into Israel over the numerous, squiggly, porous "internal borders" between "us" and "them". The very idea of trying to seal those internal borders conjures nightmare - and visions of Israeli soldiers all over the place, forbidding people to travel from village to village.
If it wants a stable backyard, Israel cannot both control the external envelope, regulating Palestinian passage to and from the external world, and close its own economy to them. The motto will be: "Better a well-fed neighbor (almost, anyhow) than a hungry one."

Defending Jordan

"Better a well-fed neighbor" - but not too well-fed. For Israel must defend Jordan's economy against the West Bank.
Jordan has always been an artificial state, carved out of the desert to suit the needs of the British empire after World War I. The tribal Hashemite dynasty rules it from above through the army and the bureaucracy, although since the fifties most of its economy is run by Palestinians. This economy does not have the potential of that in the West Bank. When King Hussein ruled the latter, therefore, he took care to inhibit its growth and development. Even after Israel's Occupation, "from 1968 until 1990, cumulative trade from Jordan to the West Bank amounted to $150 million, while from the West Bank to Jordan it was $1.46 billion." NOTE 3 If the West Bank and Gaza were to have genuine economic independence, and if responsible people were in charge - people who would attract investment, build infrastructure, create productive jobs - this would threaten, first and foremost, Jordan. Israel has no interest in letting the Palestinian economy develop at the expense of its long faithful Hashemite neighbor.

As for the Palestinian side:

Even disregarding the economic shambles in which Israel left the Palestinians, the Oslo agreement does not give them any chance whatever of building an independent economy. Five years after the Declaration of Principles, their main export is still labor. The salaries of Palestinians working in Israel make up about 40% of the total income in the Territories - this, despite the policy of closure. The fact that this policy continues is the saddest sign of how little Oslo provides for Palestinian workers.
If an economy is to develop, certain basics are required: e.g., territorial continuity, sufficient living space (without Israeli settlements and bypass roads), control over land and water, control over trade, including the ability to protect local producers against foreign dumping. [See next article.] The Oslo agreement disallows all these things. There is one further hindrance to an independent economy, however - one that pundits seldom mention - and that is the Palestinian Authority itself.
During the last five years the PA has developed a ruling elite that may fairly be described as parasitic (as a class: comprador bourgeoisie). Its members get rich by mediating between the PA and Israel, as well as between the PA and the pro-Oslo "donor nations". Convinced (and rightly so) that it is impossible to build a national economy under Oslo, this elite follows the maxim, "Eat, drink and be merry, for tomorrow we die." That is the reason for the rampant corruption, the development of personal monopolies, and the broader economic passivity. The major task that the Oslo agreement imposed on Yasser Arafat and his associates was to build not a thriving independent economy, rather a Palestinian police state, thus enabling Israel to reach out freely to the Arab world and gain economic dominance in the region.
In this way, the compulsory interdependence that characterized the period of direct Occupation has been replaced with another kind: interdependence by agreement. This time, though, the dependence is between regimes, not peoples. Just as Arafat needs Barak, Barak needs Arafat. The two of them stand together opposite a poor and hungry people.
Why then does Barak make threats of economic separation, if he knows that such a step might topple his partner and undermine Oslo?
The reason is political. In February he and Arafat are supposed to sign a framework for the permanent arrangement. He has no interest in endless meetings with lower-ranking Palestinian officials. He wants things settled at a single stroke ("Barak", the name he chose for himself, means "lightning") between himself and Arafat, under the aegis of Clinton and on the model of Camp David. In such a trio, the scales will weigh against the Palestinian side. To bring Arafat along, however, he needs a tangible threat, and that of economic separation (always tangible, mildly or strongly, in the form of the closure checkpoints) does the job nicely. As for Arafat, the sole advantage he can glean from the threats of Barak is this: He'll be able to justify his concessions, saying "I had no choice."
As with previous summits, the Palestinian people remains in the dark about the program of its negotiators. On November 5, however, Arnon Regular of the Israeli weekly Kol ha'Ir cited a senior Palestinian official who revealed that on the basis of maps prepared for the final-status talks, the Palestinians will demand the establishment of a state on 80% of the West Bank; they will be willing to settle for 65% if other demands are met. As for the Israeli program, Akiva Eldar of Ha'aretz published it on November 2, the eve of Barak's journey to Oslo:
1. Just before the signing of the permanent-status agreement in February 2000, Israel will agree to grant the Palestinians recognition as a state. This is in Israel's interest. If the peace agreement is to be obligatory, it must be nation-states that sign it, not one state and one national-liberation movement.

As to that state, what will be its character, what will be its boundaries, and who will be its subjects?

2. Boundaries: Barak is not yet talking in percentages. The settlements will be gathered into three central blocs, which will be annexed to Israel. Jewish settlers who choose to remain in the Palestinian areas will receive a special status, still under Israel's responsibility, and likewise, mutatis mutandis, the Palestinians who choose to stay within the Israeli blocs. The Palestinian areas will be demilitarized, and the new state will not be permitted to take part in military alliances against Israel.
3. Jerusalem will not be divided, but its boundaries will be expanded to include Palestinian villages. The Palestinians will be able to declare a part of this area as their capital (e.g., Abu Dis - RBE). As for the Old City, the present tactic is to put off the decision.
4. Palestinians are to have no right of return to Israeli areas. Some of the refugees from 1967 will be entitled to return to the West Bank in accordance with its capacity to receive them. As for the refugees of 1948, Israel will compensate them in partnership with the international community.
The main question that remains is one of marketing. In order to stay within the temporal framework and soften the Palestinian hard-liners, Barak has to keep reminding them who it is that finances Arafat, or in other words, who's boss. Arafat finds himself without Jerusalem, without the refugees, and with the Israeli settlements. In such a situation, the last thing he desires is to remain alone with three million hungry Palestinians. The threat of economic separation, therefore, is nothing more than an Israeli bargaining chip. If Barak were to try to use it, the whole pack of cards called Oslo would collapse.
Toward the end of the eighties, during the intifada, Israel had a historical opportunity to achieve a respectable separation. It rejected this alternative, preferring to set up in its backyard a Palestinian entity that is weak, corrupt, and dependent. Wanting control over the external borders, Israel chose to swallow the Palestinian people. This choice brought a condition: Israel has to make sure, henceforth, that the Palestinians do not become so desperate as to cause indigestion. Unwilling to allow them freedom, in other words, it finds itself economically responsible for them. Such ongoing interdependence will inevitably take political expression, and whatever that may turn out to be (apartheid, for example?), we can be sure that it will not help the cause of a viable Palestinian state.
- Roni Ben Efrat

Endnotes

1. Israel Yearbook and Almanac (IYBA) 1996, Vol. 50, Jerusalem, pp. 144-45. (www.iyba.virtual.co.il) For the Palestinian market, however, our source is Stuart Eizenstat, the US State Department's senior official for global economic issues, in a lecture on June 14, 1998 at the Hebrew University, Jerusalem.

2. IYBA 1998, Vol. 52, op. cit., pp. 192 - 93. IYBA, 1999, Vol. 53, op. cit., p. 120. Israel will not protest, of course, if the Oslo process strengthens its commercial ties to the Arab world, which contains 250 million consumers. It looks westward, nonetheless. The Arab market is weak, and it cannot absorb Israel's hi-tech goods. By way of comparison: "Israeli exports amount to $14 billion, Jordanian to $68 million, Syrian to $15 million, and Egyptian to $399 million." Joel Bainerman, "The Economies of Peace," Jewish World Review, Nov. 13, 1998.

3. Bainerman, op. cit.