Peace: Israel's Best Economic Program

What boosted the growth rate of the economy and increased foreign investment in Israel eight-fold? The peace process.

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The bustling McDonald's branch at a Ramat Gan mall, Israel.Credit: Nir Keidar

At midday I was notified that the plane would leave on time. I packed a small bag and went to the airport. I could feel the excitement in the air in the departures hall. It’s not every day that so many Israelis head for Amman to attend an economic summit most of whose participants will be Arab businessmen and politicians from every country in the region, including Iraq and Syria.

After the half-hour flight from Ben-Gurion airport, we landed in the capital of Jordan at 7 P.M. on October 29, 1995. From the airport we went straight to the conference hall for the festive opening.

Yitzhak Rabin, the Israeli prime minister, was one of the first to deliver greetings. He said, “So far we have invested much blood, much time and much money in a product which may have been essential to our national existence, but of little benefit to our citizens. We invested in war… Peace in the Middle East demands that we think differently, talk differently and act differently. From now on, all our efforts, actions, plans, all our words must concentrate on the economy and on the quality of life. We owe this to the citizens of the countries which we represent here.” The hall shook from the fervor of the applause.

A week later, Rabin was assassinated in Tel Aviv.

The economic conference in Amman was the second regional peace conference. The first was held a year earlier, in Casablanca. But only in Amman were Yitzhak Rabin (prime minister) and Shimon Peres (foreign minister) big stars. Everyone wanted to rub elbows with them, talk to them, have their picture taken with them. The atmosphere was electric. The euphoria was sky-high. I still remember that an importer from Syria(!) asked me how one does business in Israel.

Arabs and Israelis were not the only ones at that conference. Europeans, too, took part in the celebration. The heads of large corporations were in attendance, including the CEOs of Volkswagen and of Enron. The feeling that prevailed was that we were seeing with our own eyes the realization of Peres’ vision: a “new Middle East” that would busy itself with social issues, the economy, growth, employment and raising the standard of living – not with preparing the next war.

Two people worked on making the vision of the new Middle East come true: Yossi Vardi and Rafi Benvenisti. They came up with a thick booklet containing ideas for dozens of joint projects involving Egypt, Jordan, the Palestinian Authority and Israel.

The idea was to create a magnificent Riviera on the shores of the Dead Sea, complete with luxury hotels and tourist areas. Slightly to the north, the plan called for a large industrial zone and agricultural farms. The ports of Eilat and Aqaba were to be united, together with the electricity and water systems of Israel and Jordan. The power for the project would be supplied by a sea-to-sea canal running from Ashkelon to the Dead Sea. A regional bank was going to be established, and a bird-watching project was also on the books. Yes, they wanted to attract bird lovers from around the world to the Dead Sea Rift.

In a corridor of the conference I happened to collar, for two minutes, the busiest person at the event: Shimon Peres. I asked him with natural skepticism where the money for these vast projects would come from. Peres shot me a pitying look and explained: There is no problem of money in our world. There are enormous funds that manage hundreds of billions in Europe and in the United States, which are just waiting for someone to present a snazzy idea to them. They will come up with the funds. He added that at one time, the trend was to invest in Eastern Europe. Now it was time to make the Middle East the next trend, and bucketfuls of money would be poured into the region – just bend over and take some.

He was so right.

Until the signing of the first Oslo accord (September 13, 1993), foreign investment in Israel stood at the ridiculous amount of a few hundred million dollars a year, which came mostly from well-meaning Jews. After the agreement was signed, those investments soared to a few billion dollars a year. More precisely, in the five years from 1988 until 1992, average yearly foreign investment in Israel was $600 million, whereas in the five following years, from 1993 to 1997, it rose to $4.6 billion a year – a quantum leap of almost eightfold.

These high investments went a long way toward improving the situation of the current balance of payments, which until then had suffered from a chronic deficit. They also transformed the economy from one marked by declining growth and rising unemployment (which reached 10 percent) to an economy that expanded at an astounding rate of 7 percent (in 1994), while unemployment fell to 7.8 percent. The economy continued to grow rapidly, at a rate of 6.5 percent, in 1995, while the jobless rate went on shrinking. The high growth continued through the first half of 1996 – until Benjamin Netanyahu won the election, liquidated the Oslo agreement and shattered the peace process.

The truth is that the economic shift began even earlier, in 1992, when Yitzhak Rabin became prime minister. Rabin began to carry out far-reaching changes in national priorities. He completely stopped the flow of billions to the settlements and started to divert the money to where it was needed: education, roads, interchanges, stagnant towns in the south and the north. That was the basis for the start of the process of growth, but Oslo was the big bang.

Immediately after the agreement was signed, Israel morphed from pariah state to a country in demand. Economic and business delegations from around the world arrived in large numbers, and the Trade Fairs Center in Tel Aviv buckled under the weight of the conventions and conferences. Multinational corporations competed over which of them would be the first to sign purchase and cooperation agreements.

Japan, for example, which until then had balked at maintaining ties with Israel, under pressure of the Arab boycott and its dependence on Arab oil, sent its first official delegation here in the wake of the cancelation of the Arab boycott. Delegations from Indonesia and India followed.

The whole world was certain that after the full peace treaty with the Palestinians was signed, the Middle East would undergo a transformation and Israel would become an economic bridgehead to the entire Arab world. That was the reason for the flow of multinationals to Israel, such as Nestle, Unilever, Danone, PepsiCo, Cable & Wireless and Kimberly-Clark, none of which had even dreamed of setting up shop in Israel before Oslo and the lifting of the Arab boycott.

Few remember, but it wasn’t until after Oslo that we were able to eat hamburgers in a local McDonald’s. The first restaurant opened in the Ramat Gan mall, in October 1993, and quickly became a mecca for fast-food devotees.

In that optimistic period, Israeli businessmen found themselves in demand at every international gathering. Many countries also renewed diplomatic relations with Israel. A few Arab countries even opened legations here: Oman, Qatar, Tunisia and Morocco.

The contribution of the peace process to the economy was clear and sharp. The Oslo accord was the best economic plan going.

But none of this made the least impression on Netanyahu. For years he has been putting forward the hypothesis that there is no connection between peace and the economy. We can live without peace, he says, and still have a blossoming, thriving economy.

I’m reminded of the story of the person who fell from the top floor of a 50-story building. Halfway down, someone calls to him from a window: Is everything alright?

“So far, so good,” he replies.

The articles that appear in this section have also been published in Hebrew and Arabic