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Annexing the West Bank Would Be Economic Suicide

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The Palestinian village of Awarta is in the foreground and the Jewish settlement of Etmar on the background, West Bank, January 26, 2017.
The Palestinian village of Awarta is in the foreground and the Jewish settlement of Etmar is in the background, West Bank, January 26, 2017.Credit: JAAFAR ASHTIYEH/AFP

It is hard to believe that the Israeli political mind has evolved backwards so far that the idea of annexing the West Bank, in whole or in part, is being seriously discussed in what used to pass for the pragmatic center right.

Annexation was traditionally the fantasy of zealots, people who didn't appreciate the beauty of the occupation: a twilight zone where settlers have all the rights Israelis enjoy (and even a few more) living amid a Palestinian underclass that supplies it with cheap labor. Denying them equality was technically legal because, after all, they aren’t citizens of Israel.

And though the settlers railed against Oslo, the peace process quickly got frozen in such a way that it did little to upset this arrangement. In fact, the situation was even an improvement because now the Palestinians were technically citizens of the toothless Palestinian Authority that relies on foreign money to provide basics like schools, health and infrastructure.

Elevated from the crackpot zone

Naftali Bennett, the pretender to Netanyahu’s throne as leader of the Israeli right, has been pushing hard for annexation since Donald Trump won the U.S. election. Whether Bennett really believes in annexation, or whether he’s using it to embarrass Benjamin Netanyahu and undermine the prime minister's rightist credentials is irrelevant. The fact is that Bennett has taken the annexation issue out of parlor meetings by extremist crackpots and brought it into the hallowed halls of the cabinet and the Knesset.

Let's leave aside the political, moral and human rights ramifications of absorbing a land populated by people who oppose the idea. We’ll ignore the risk of a Third Intifada that might ensue, or the world’s reaction to such an outrageous step.

Let's instead look at the economic effects. Not that those will affect the thinking of annexation zealots who take the view of "settlements good, everything else irrelevant."  But for the rest of us who would have to live an enlarged Israel, let’s consider the economic impact, because if the average Israeli is indifferent to the fate of the Palestinians in any meaningful way, he isn't indifferent to the fate of his wallet.

Sinking below rock-bottom

Israel today is usually in the bottom tier of the world’s most developed countries in an array of socioeconomic indicators, like GDP per capita, educational performance, poverty and inequality, and labor productivity.

What that mediocre ranking really represents is, however, the average of a First Israel – a hotbed of high tech, innovation and internationally competitive companies, the envy of the world –  and a Second Israel, of poorly educated and unskilled workers with low incomes, who are a drag on Israel’s productivity growth and its standard of living.

That Second Israel is getting bigger, over time, because of the growing percentage of ultra-Orthodox Jews and Israeli Arabs, two communities characterized inter alia by higher birthrates and big families, lower participation in the workforce, and higher poverty rates.

Annexation will tip the balance heavily toward the Second Israel.

Suddenly, Israel’s population will grow from 8.2 million to 10.9 million, and the Jewish majority will sink from 80% to 59%. In one fell swoop, Israel’s GDP per capita would fall more than 20%.

That’s a big drop, but the new figure would in fact be a misleading average, because we would be adding a population whose levels of poverty, unemployment are enormously higher than Israel’s, and whose skills, training and education are many times lower.

The Second Israel would be huge and the gap between it and the First Israel would be wider than ever. The stock of unskilled labor in the enlarged Israel would grow exponentially, discouraging investment in machinery and equipment and innovation in favor of cheap labor and leaving the standard of living for everyone the worse off for it.

To bring the Palestinian population up to even the material and educational standards of a developed economy would require an investment of tens of billions of shekels. But it’s hard to imagine that in a political environment  where Israel’s Arab minority struggles to get its fair share of government attention and money, that West Bank Palestinians would fare any better. Even if the will to do so unexpectedly emerged, the bill would fall on the Jewish middle class, which is already carrying a disproportionate burden of taxes and army service.

The annexationists, I suppose, have a fantasy that we’ll annex the land but not the people. It will be one state from the river to the sea, with a wall down the middle and millions of disenfranchised, impoverished people on one side of it. Far from a Zionist vision, it sounds more like the next installment of The Hunger Games.