As Donors Flee Palestinians, Israel’s Right Faces an Unpleasant Dilemma

Aid has kept the West Bank and Gaza afloat. Without it, Israel may have to countenance real economic development and what that means

Harvesting potatoes in the West Bank: Picture shows three people digging up potatoes by hand.
ABED OMAR QUSINI/ REUTERS

When the Israeli army presented figures this week showing that the population of Israel, the West Bank and Gaza was now evenly split between Jews and Arabs, the right went ballistic. After all, their vision of the Greater Land of Israel isn’t just about controlling all the land, but its Jewish character. It’s going to be hard to say Greater Israel is the Jewish state if half or more of its inhabitants aren’t Jewish.

In America, the right’s resistance to scientific fact comes to the fore in its rejection of climate change. It isn't that the right believes in “alternative science”, it's that it has a visceral distrust of pointy-headed experts and does not want to accept that climate change means unrestrained economic growth cannot be sustained. Also, the right and its.

In Israel, the right’s most-hated branch of science is demographics.

A group of amateur demographers led by the retired diplomat Yoram Ettinger have long peddled the idea that the population experts are all wrong – not because the Ettinger crowd has any deep insights into the science of demography, but because they don’t like what the science has to tell them.

In any event, even if you accept their numbers, you get a Greater Land of Israel that is either 36.6% Arab (without Gaza) or 44.4% Arab (with it). Those are not exactly the kind of percentages that would ensure Israel’s Jewish character in the way the right imagines.

Eating cake in the West Bank

The right is less disparaging of the science of economics. Nevertheless, the World Bank issued some numbers last week about the state of the Palestinian economy that should give pause to the settlers and their supporters, who live in a fantasy land where ordinary economics haven’t applied – until, perhaps, now.

Economic growth in the West Bank and Gaza is slowing to the point where it is barely keeping up with population growth, the World Bank shows.  And, going forward, the situation is even more bleak: Another World Bank study published last September showed that without substantial change in Palestinian governance, and a significant reduction in Israeli restrictions on the movement of goods and people, per capital incomes will start to decline in the West Bank. That spells rising rates of poverty and joblessness.

The army takes the issue of Palestinian welfare seriously based on the assumption that unemployed, impoverished people are more likely to be attracted to violence.

But that seems to be the extent of Israel’s interest in the matter.  We’re allowed ourselves that luxury for the simple reason that we’ve been living in have-your-cake-and-eat-it-too world, where we rule the West Bank and have Gaza under permanent siege, while other countries foot the bill for maintaining the Palestinians’ livelihood.

Everyone knows that Gaza is an economic disaster, but even in the “prosperous” West Bank, industry and agriculture have been on the decline for decades. The jobless rate in the West Bank is 18% and among the youngest it’s 30%.

Together with Gaza, the West Bank’s foreign trade deficit is 40% of GDP, a rate usually associated with failed states.

Private sector investment is far below the levels needed to generate growth and what investment there is in the West Bank, tends to go to construction and trade, which does little to contribute to long-term growth or employment.

The West Bank, and even more so Gaza, survive thanks to international donor aid and to Palestinians working in Israel as day laborers. When the aid spigot is open, the Palestinian economy thrives, as it did in 2008 to 2012, when aid accounted for close to a third of GDP.

When the aid spigot is turned lower, growth slows or disappears, because there isn’t much of anything else to pick up the slack.

Poverty in Gaza: Palestinian children play among discarded vehicles in el-Zohor slum, on the outskirts of Khan Younis refugee camp, southern Gaza Strip.
Khalil Hamra / AP

Inevitable donor fatigue

Donor aid is in decline (and not just because Trump has left UNRWA high and dry) and that’s no surprise. Aid was supposed to be a stopgap until Palestine was independent and could get its economic act together. But that’s not going to be happening any time soon, so it’s no wonder donor fatigue has set in.

That’s why the World Bank has recommended a package of changes to make it easier to do business in the West Bank, if not Gaza.

The list doesn’t include anything that hasn’t been proposed before – a more efficient Palestinian Authority, better infrastructure and regulations, more efficient tax collection and a crackdown on corruption.

But the biggest contribution has to come from Israel – by allowing greater Palestinian movement of goods and people, and cutting the red tape and security restrictions on Palestinian imports and exports.

It also calls for opening up Area C of the West Bank, which is subject to Israeli administrative and security control, to Palestinian economic development.

That last idea is going to get nowhere with Israel’s right, which is intent on annexing at least Area C to Israel, if they can’t get the entire West Bank.  

But the right’s objection to Palestinian economic development is bigger than about real estate: Letting the economy thrive means giving Palestinian rights and freedoms they don’t have now, normalizing their status, and bringing them a step closer to their state. So, economists, watch out, you could be next in the right’s crosshairs.