The Trump administration’s announcement over the weekend that it would be cutting $200 million in aid to the Palestinians has been widely condemned for good – if somewhat overwrought – reasons.
Critics say it risks a humanitarian crisis in the West Bank and especially Gaza and amounts to a sort of “thuggish diplomacy” aimed at forcing the Palestinians to consent to the Kushner peace plan. It even increases the chances of war because desperate, impoverished Palestinians will have no resource but to resort to violence.
But what the decision really illustrates is the absurdity of the West Bank occupation. Israel has for all intents and purposes subcontracted most of the business of the occupation to the international community (which pays much of the bill) and to the Palestinian Authority (which provides the labor).
Outsourcing much of the occupation to others makes good business sense from Israel’s point of view. The absurdity is that the left approves all of this, as does the Palestinians establishment, while the settlers and Israel’s right hate it, even though they are the main beneficiaries.
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The Israeli left and the international donor community support aid for humanitarian reasons because it helps provide health, education and other services, but they ignore how it perpetuates the very occupation they loathe. For the PA establishment, it’s easy money that subsidizes a bloated civil service payroll, creates jobs with foreign-funded NGOs and puts off the day they have to worry about trying to build a functional economy in the West Bank or Gaza.
The Israeli right would love to wave goodbye to all that money because it would mean getting rid of the European Union and international organizations working in the West Bank and Gaza. The most delusional of them all want to annex all or part of the West Bank and a few even dream of returning to Gaza. Their chief concern is how to pull this off without giving the Palestinian residents of the enlarged Israel equal rights; they rarely consider the great deal they are getting now.
When the peace process began 25 years ago, the PA was envisioned as a Palestinian government in the making. But in the very long meantime it has evolved into a way for Israel to outsource the daily functions of administering the West Bank’s Palestinian population, or at least the great majority who live in Areas A and B.
The most critical element of this is the role of the PA security forces in helping to keep Hamas at bay, saving Israel a lot of trouble and cost in doing the work itself. The United States has been spending about $35 million annually in recent years to support the security forces, one of the few areas the PA gets direct American funding.
But that’s only a fraction of the outsourcing fees the PA gets. Direct foreign aid amounted to 17% of the PA’s estimated $4.3 billion budget last year, almost equal to what the PA itself took in in taxes.
Most of the budget (58%) comes from tax Israel collects for the PA on customs collected on good entering PA-ruled areas. With that money, the PA funds over-employment of Palestinians and provides services at a much lower cost than if Israel had to supply them itself.
Lots more money flows in from overseas that doesn’t reach the PA directly (including the bulk of American aid), but is spend on an array of institutions like schools, hospitals and NGOs. It's this aid money coursing through the West Bank – and to an even greater extent Gaza – that has kept the Palestinian economy afloat.
The aid money has been in decline for a long time party due to donor fatigue or (in the case of American aid) irritation with Palestinian policies, especially its paying allowances to the families of martyr-cum-terrorists. When Israeli rightists complain about aid to the PA, this is what gets them hot under the collar.
As is acknowledged by everyone who doesn’t have a vested interest in the system, this aid-reliant economy is unsustainable.
Aid now accounts for no more than 12% of Palestinian GDP, a third of it was at its peak in 2009, and it's hard to imagine the trend reversing apart from the long-shot scenario of a renewed peace process generating donor excitement like it did at the start of Oslo.
In all events, more than $30 billion in aid since 1993 hasn’t done what it was supposed to do, which was to develop the Palestinian economy. Instead, it stifles the private sector by giving little incentive for Palestinians to strike out on their own.
Corruption and poor governance contribute to the Palestinians’ aid-reliant economy, too, but Israel has to take a lot of the blame, too. Israel has grown too comfortable outsourcing the occupation and ignores the long-term implications of a population suffering from chronic poverty and unemployment that aid has done nothing to solve. The idea of encouraging the Palestinian private sector gets at most occasional lip service from Netanyahu.
Unfortunately, the Trump administration isn’t moved by these kinds of long-term concerns about the deleterious impact of Palestinian aid. It just wants to stop paying the bills without any plan for what will fill the vacuum. The cut announced this week and the threat of more seem to be motivated by a crude negotiating strategy and pleasing his pro–Israel political base at home. Maybe the Kushner peace plan will square the circle, but I’m willing to bet it will just leave a lot of wreckage.