Economic viability is necessary for sustainable peace

by Mohammed El-Samhouri

For sometime now, a consensus has gradually been building up among many political and economic analysts that the continued Israeli settlement drive in, and the subsequent cantonization of, the occupied Palestinian land of the West Bank, is seriously eroding the economic viability of any future Palestinian state, and with it any remaining hopes for a peaceful negotiated settlement of the Arab-Israel conflict based on a two-state solution.

Although the Palestinian right to freedom and self determination does not hinge at all on whether the future Palestinian state will be economically viable or not, the lack of such viability would most certainly constitute a major threat to its very existence and, by implication, to the prospects of lasting peace in the region. That is why the viability question, with its determining elements like land, borders and resources, continues to figure prominently in any serious debate over Palestinian statehood.

Ever since the question of the economic viability of a future Palestinian state started to appear in the political and economic writings of the Middle East a little over a quarter of a century ago, the underlying political assumption behind the term was that the future state would be established on the Palestinian land occupied by Israel in the 1967 war, i.e., in the Gaza Strip, the West Bank and East Jerusalem.

This land, which constitutes about 22 percent of historical Palestine, was considered to be the potential economic base for the Palestinians of the occupied territories in the context of a two-state solution to the Middle East conflict. The assumption entailed a host of other sub-assumptions, all deemed crucial for the economic survival of the future state: full control over water and other natural resources, complete sovereignty over land, air and sea access to the outside world, and a sovereign and unfettered territorial link between the two geographically separated areas of the Gaza Strip and the West Bank regions; all, of course, in the context of a comprehensive and lasting peace deal with Israel that would put a negotiated end to the conflict and provide the stability, security, and certainty necessary for the conduct and sustainability of economic activity.

It was further understood that such a condition would constitute the bare minimum for the proper functioning and the long-term survival of the economy of the future Palestinian state and its continued ability to provide its growing population with productive jobs, adequate social services, and decent standards of living. A bare minimum because, without it, as the recent experience of the post-Oslo years has sadly proven to all concerned parties, it will be next to impossible to make a meaningful use of the four major factors that will help maintain viability in the short run, and secure long term viability, if properly exploited.

These factors are: (1) the effective utilization of international financial support necessary to build the physical infrastructure and public institutions of the nascent Palestinian state; (2) taking advantage of the geographic proximity to a much more advanced and stronger Israeli economy, based on fair and interdependent economic relations and terms of trade; (3) the development of trade relations with regional and international markets, crucial for the growth and development of the small domestic economy of Palestine; and finally, and probably most importantly, (4) the upgrading, building and capitalizing on the skills of the one and only asset the future state of Palestine will have, and that is its young and rapidly growing human resources.

The underlying rationale of the preceding argument about the economic viability of the future Palestinian state was true then, and is still very much true today. To prove the continued applicability nature of the economic viability notion as presented above, one need go no further than contemplating the grave economic, social, and political consequences of maintaining today's status quo. And for that mental exercise, the help already exists and can be found in recent reports by the World Bank on the Palestinian economy (June 23 and December 2, 2004).

According to the World Bank studies, a decade-old multifaceted closure system that imposed severe restrictions on the movements of the Palestinian people and their goods, has brought about a near collapse of the Palestinian economy in recent years. A continuation of such a system, the Bank predicts, coupled with continued Israeli policies of settlement expansion and the building of the separation barrier on confiscated Palestinian land along the entire western front of the West Bank, will all lead, over the next three years, by 2008, to further decline in the Palestinian economy and to more deterioration in the standard of living of the Palestinian population. More precisely, according to the Bank's figures, per capita income in the West Bank and Gaza, which has lost a hefty one third of it's value over the past four years, will lose another 12 percentage points, and both poverty and unemployment rates, currently estimated by the Bank at 50 percent and 37 percent, respectively, will each rise by 7 percentage points over the same period. This, the Bank says, will be the outcome even if the international community continues to disburse its current level of about US$ 1 billion annually over the next three years.

How do the above facts and figures square with the notion of the economic viability of the Palestinian state? Very simply: the present Israeli policies of continued control over the Palestinian people and their land is very costly, unsustainable, and could very well have devastating consequences in the not-so-distant future. Leaving some of the occupied Palestinian land, with the designed intention to maintain full control over its future, as is the case with Sharon's unilateral disengagement project and its restrictive terms, is no viable alternative. The notion of economic viability, as a sina qua non of any future Palestinian state, thus derives its vitality from the fact that, once guaranteed in any future peace deal, it will offer the Palestinian people the means necessary to recover from the present economic setback, and then to proceed with the challenging task of building up a modern economy that can enhance the long term prospects of peace and stability in the region.

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- Published 11/4/2005 (c) bitterlemons.org. Used here with permission.

Dr. Mohammed El-Samhouri is a Palestinian economist based in Gaza, and a former senior economic adviser to the Palestinian Minister of Foreign Affairs.