The High Cost of Not Making Peace: RAND Study Calculates Dividends for Israelis, Palestinians

Director of RAND’s Israeli-Palestinian initiative tells Haaretz that the study is an attempt to show Israeli and Palestinian leaders the consequences of their decisions: 'We hope it will be a tool from the policymaking perspective.'

Ultra-orthodox Jewish man passes by Palestinians in Jerusalem.
An ultra-orthodox Jewish man passes by Palestinians sitting in a coffee shop near Damascus gate in Jerusalem's Old City. AP

Prime Minister Benjamin Netanyahu said on the eve of his re-election in March that there would be no Palestinian state if he was successful at the ballot box. The only thing it seemed to cost him after the fact was his credibility in Washington, in Ramallah and in diplomatic circles, where people are skeptical when he now says that he does, in fact, support a two-state solution.

But what if not reaching a two-state solution were actually costing Israelis – and Palestinians – billions more than anyone realized? According to a new RAND Corporation study released Monday in Jerusalem, Israelis stand to gain $123 billion in the next decade if they pursue a two-state solution, and Palestinians, some $50 billion, with average per-capita income rising by about 36 percent. RAND, a nonprofit global policy think-tank based in Santa Monica, California, in 2013 started this comprehensive study of costs and benefits of continuing the conflict or pursuing alternative scenarios over a ten-year period, from 2014 to 2024. Among the five possibilities they looked at were: (1) reaching a two-state solution, (2) a coordinated unilateral Israeli withdrawal [from parts of the West Bank], (3) an uncoordinated Israeli withdrawal, (4) nonviolent resistance, and (5) violent uprising.

“We’re trying to give information to policy makers for them to make the best decisions possible. So we looked at the present and trended that forward by ten years,” explained C. Ross Anthony, the director of RAND’s Israeli-Palestinian initiative and the co-leader of the study.

Over that decade, the Palestinian economy would gain an additional $9.7 billion in GPD were a two-state solution reached. If things go in the opposite direction and there’s a return to “violent resistance,” Anthony said, the loss to the Palestinian economy would be $9.1 billion in GDP. The same figures for the Israeli economy, according to RAND, would be a $23 billion increase in GDP if there’s a two-state solution, and in the worse-case scenario, a $45 billion loss if there’s a return to violent resistance.

As Israel’s economy is much larger, the raw numbers amplify more widely there, but for the Palestinians, a return to conflict would effectively hit them harder.

“On a percentage basis, Palestinians gain or lose more than Israelis,” Anthony said. “In essence, the absolute change is always greater on the Israeli side, but the percentage change is much greater than the Palestinian side, giving them a much greater incentive to move from the status quo from the Israeli side,” he added.

The authors of the study also looked at the possibility of the BDS campaign (Boycott, Divestment and Sanctions) gaining steam, alongside incumbent economic challenges Israel already faces, such as an EU demand to label all products made in the West Bank settlements and keep them out of European markets.

“In the nonviolent resistance scenario, Palestinians would take actions to put economic and international pressure on the Israelis – a scenario some observers note may already be unfolding. In this event, Israelis could lose $80 billion and Palestinians could lose $12 billion relative to current trends. But compared with a two-state solution, losses from the non-violent resistance scenario become even more dramatic: "About $200 billion for the Israelis and $60 billion for the Palestinians,” the RAND authors said in a press release as part of the launch of the study Monday at the Jerusalem Press Club and at the Hebrew University of Jerusalem. The authors made the unusual decision to launch the first comprehensive study of costs to both sides in the conflict in the region. In meetings in both Jerusalem and Ramallah, the team briefed senior Israeli and Palestinian political officials on their findings on Sunday and will continue to do so Monday and Tuesday. RAND will then present its findings in Brussels and in London later this week, followed by a presentation in Washington early next week.

“We wanted to release it in this region,” Anthony told Haaretz. “We recognize that these are really the issues of the region and so we wanted to have enough left in our budget to spend five days in the region sharing our findings. We’re trying to say, here’s what the consequences of your decisions. We hope it will be a tool for Israeli, Palestinian and U.S. leaders from the policymaking perspective. One of the main conclusions we reached is that people don’t fully understand the opportunity costs involved.”

Charles Ries, a co-leader of the study and vice president of RAND, said the figures meant peace – or lack of peace – would not just be something felt on a macro level, but that individual income would grow as the result of a solution to the conflict. But individual Palestinians, interestingly, stand to gain far more. “A two-state solution produces by far the best economic outcomes for both Israelis and Palestinians,” said Ries said. “In a decade, the average Israeli would see his or her income by about $2,200, vs. a $1000 gain for Palestinians, compared with our projection for present trends. But that only works out to 5 percent for each Israeli, vs. 36 percent for the average Palestinian, meaning Israelis have far less and Palestinians far more economic incentive to move toward peace."