David's Harp / Can't turn Palestine into Singapore
That is what the World Bank suggests as the foreign-aid IV dries up. But the West Bank doesn’t have what it takes.
Perhaps the most interesting thing about the World Bank report published last week on the Palestinian economy is that anyone is taking interest in the Palestinians at all.
Once seen as the core of all the Middle East’s manifold problems and the high road to their solution, Palestine has rapidly tumbled down the ladder of the world’s priorities. These days it gets about the same level of attention as the Islamic takeover of northern Mali or the Russian occupation of Georgia’s South Ossetia and Abkhazia -- a regrettable state of affairs but a local problem and not one that any major power is going to devote valuable financial and diplomatic resources to solving.
For that, the Palestinians can give a back-handed thanks to their brothers in Egypt, Libya and Syria.
The Arab Spring exposed the depths of political, social and economic distress in the Middle East and put the blame where it belongs, which in is in Cairo and Damascus, rather than in Jerusalem or Ramallah. Worse still, the Arab Spring has taken away the attentions and the wallets of the donor countries.
Ensuring that Egypt’s 80 million don’t nosedive into a cataclysm of economic disaster and Islamic radicalism and the civil war in Syria are far more important to America, Europe, Turkey and Iran than is the fate of a few million Palestinians.
Thus the taking off point of the World Bank report is the horrible fiscal condition of the Palestinian Authority wrought by the drop in foreign aid and the delirious effects it is having on the Palestinian economy, such as it is.
The money deluge dries up
Just four years ago, when they enjoyed outsized importance and the split between Fatah and Hamas made the survival of the Fatah-controlled West Bank critical, the Palestinian Authority in the West Bank was bestowed with vast amounts of money. That had the happy effect of spurring spectacular rates of economic growth in the West Bank as a ballooning government payroll enabled clerks to go on more shopping trips and build homes, creating the forest of construction cranes in Ramallah many misinterpreted as an authentically booming economy. Aid agencies splurged on offices and imported experts, who also needed homes as well as hotels and restaurants, thereby providing the other accoutrements of boomtown life.
But the rest of Palestine never shared in the prosperity. The unemployment rate, even when growth was at its peak, never fell below 18% in the West Bank. While the public sector was growing, industry and agriculture were shrinking. Now the public sector has to shrink, too, because the foreign largesse is no longer and there’s nothing to replace it.
The World Bank’s prescription to this malady is to encourage the growth of a real private sector as against a private sector of contractors serving a bloated public sector.
But that will be a tall order. The easy way of generating short-term growth is to free small traders and manufacturers from the most onerous restrictions to business, which is what set off the economic boom on Gaza after Israel eased off on its embargo. But in the West Bank, it doesn’t seem likely that Israel will liberalize the regime of roadblocks and security fences in any significant way.
The World Bank acknowledges as much, so it suggests that the Palestinians take their cue from Japan and South Korea, or more plausibly Singapore, and build the infrastructure for an economy driven by exports of goods and high value-added services.
But how the Palestinians are to pull this one off beggars the imagination. The World Bank lauds the West Bank’s “well educated and entrepreneurial population” but then later notes that even today employers complain they can’t find job applicants with the right skills. Palestinian labor may seem cheap to Israelis, but compared to other underdeveloped economies it is expensive.
In any event, it is hard to imagine Palestine building an “outward orientation and integrating into world supply chains” when it has neither an international airport nor a port.
Which isn’t to say that the Palestinians don’t need to, and can't, figure out something quickly.
The next intifada, not what you thought
Prime Minister Salam Fayyad has gone a long way to cleaning the Augean stables of Palestinian finances, but his labors have been small compared to the halo of hype bestowed on them. Where the PA is not reliant on foreign aid, it depends on tax revenues collected and transferred to it by Israel.
Surveys show that ordinary Palestinians, who should know better than anyone, see their government as corrupt and inefficient. The failures of the Palestinian establishment have been immense – the split between Fatah and Hamas, the abortive statehood drive, the absence of any pretense of negotiations with Israel and the authoritarianism-lite government in the West Bank and Islam-lite of the quasi-state in Gaza.
Together with the economic malaise, the political malaise makes dangerous brew.
With the economy slowing, the intolerance for ineffective, corrupt and inefficient government will almost certainly grow.
“Palestine seems to be entrenching a form of politics that has provoked uprisings elsewhere in the region. An Egyptian from the Mubarak years might find some eerie similarities in either half of the Palestinian polity. Even the resigned sarcasm of the inhabitants harkens to the Egypt of the 1990s and early 2000s,” Nathan Brown, a Middle East specialist at George Washington University, wrote in June after visiting Gaza and the West Bank.
In the current mood of the Middle East that could easily erupt into violence—not against Israel but more likely the Palestinian street rising up against its ruling elite. The Third Intifada could be a purely domestic affair.