Who Profits From Israel's Occupation of the West Bank?

When Israel conquered the West Bank and Gaza 50 years ago, it could have used economics to build a lasting peace. It didn’t, and the only beneficiaries have been the settlers

Aerial photo of West Bank showing Jewish settlements to the right of the separation wall and Palestinian homes to the left.
Lefteris Pitarakis /AP

For the last half century, the occupation of the West Bank has been defended on the grounds that it’s essential for Israel security, that it’s the Jews’ Biblical inheritance, and/or that it’s not an occupation at all because it was ours to begin with under international law.

But has the occupation been of any benefit for the Israeli economy?

No one really asks this question. Maybe that’s because compared with Israel’s survival or God’s ancient promise, asking whether the occupation makes good business sense seems trivial, if not outright vulgar. In all events, it’s likely the economic effect is a boring neutral.

Much has been written about Israel’s exploiting cheap Palestinian labor or stealing the West Bank’s natural resources. But these violations of international law and human rights norms, in economic terms, Israel hasn’t profited much.

There are 20 industrial zones in the West Bank that employ mostly Palestinian labor, and also, about 100,000 Palestinians cross over into Israel, legally or illegally, to work mostly at menial jobs.

But the total impact on the Israeli economy is marginal. No leading companies operate in these zones. SodaStream was about the only one and it got up and left in 2015.

Not quite a world gravel power

Only 0.5% of Israel’s industrial exports originate in the settlements. The leading sectors of the Israeli economy – high-tech, pharmaceuticals and chemicals – don’t rely on low-cost labor, Palestinian or Israeli.

There are few natural resources to exploit on the West Bank, apart from Dead Sea minerals and some rock quarries. Needless to say, Israel is not a leading world gravel power.

Arguably, poorer, less educated Israelis actually benefited from the occupation in the years after 1967: The flood of cheap Palestinian labor drove them out of low-paid jobs and into better employment. But overall, the economic effect of the occupation has been negative for Israel for Israel’s neediest, because the settlements have drawn so much of the government’s resources away from them unfairly.

The settlers argue that they would need schools and roads even if they were living inside the Green Line, but that argument is stretched. The new and isolated settlements built over the years in the West Bank and Gaza required more investment than expanding existing ones. Government aid is awarded not because these settlements are economically distressed but because they are settlements. That means there’s less money inside the Green Line, and less for the communities that need it most.

How much this has added up to over the last 50 years is anyone’s guess because the government makes sure there are no reliable figures. But a big part of that money has been going to middle-class settlers at the expense of poorer Israelis. It made the Israel inside the Green Line less equal and worse off.

The cost to the Palestinians

For the Palestinians, the occupation has been an economic weight, although not nearly as heavy a one as the occupation’s critics make it out to be.

One very rough measure about how much the occupation has cost them is to look at Jordan, a near neighbor with approximately the same population and resources as the West Bank.  

On the surface, the cost of Israel’s occupation looks pretty steep: Taking into account the local costs for goods and services, gross domestic product per capita in the West Bank and Gaza Strip was $4,300 in 2014. In Jordan, it was $11,000.

But it’s not so simple. The International Monetary Fund estimates that Palestinian per capital GDP would be anywhere between 40% and 130% higher if the West Bank and Gaza hadn’t suffered from years of political uncertainty and restrictions on the movement of people and goods.

The higher figure, which seems like the better one, comes from taking the high 4.4% rate of economic growth in the Palestinian areas in the years before the first restrictions on movement and the violence of the First Intifada. It calculates where per capita GDP would be now if nothing had changed in the following years, and the result would be a level close to or exceeding Jordan’s.

Economically speaking, it suggests the occupation itself has been relatively benign. If Israel didn’t allow Palestinians to develop their own economic base after 1967, it did create employment – and more lucrative employment than was available from Palestinian employers. But the two intifadas and Israel’s response of erecting checkpoints or barriers undid all that and had a profound effect that continues to this day.

The economics of a half century of occupation may not have the drama that has characterized other aspects of the Israeli-Palestinian entanglement, but in certain ways it was the most fateful of them all.

Imagine that after the 1967 war, Israel had chosen a policy that let the Palestinian economy develop as a full-fledged partner with Israel rather as a pool of cheap labor. There’s no reason to think that would have doused the flames of Palestinian nationalism, but it would have created a firmer foundation for peace between two states.