Israel and Palestine: Is it the economy, stupid?

In the endless debates revolving around the merits of a peace agreement between the Israelis and the Palestinians, economic costs and benefits often seem to be ignored or even neglected. Moreover, fact-based debate about the nature and possible solutions to the conflict is sorely missing from many of the discussions and writings about this protracted conflict.

It is therefore refreshing to see new in-depth research published by the American RAND policy think tank, addressing the economic costs of the Israeli-Palestinian conflict. A group of researchers led by C. Ross Anthony and Charles Ries, employing quite sophisticated research methods, demonstrate scientifically and convincingly, what one might argue should have been basic common sense for everyone involved in the conflict.

In short, the idea is that peace between the Israelis and the Palestinians would bring enormous economic benefits to both. Yet, after twenty-two years to this month, since the Oslo Accords were signed, economic incentives proved not to be the deciding force in pushing both sides to reach a peace agreement.

Five alternative trajectories

RAND’s research looks at five alternative trajectories for the Israeli Palestinian conflict and how they would impact Israel and Palestine’s GDP by 2024. A two-state solution would increase Israeli GDP by $123 billion vs $50 billion increase of Palestinian GDP over ten years.

On the other extreme scale of scenarios, the one of returning to full-blown violence, both economies would suffer immensely, with a decrease of 46 percent in GDP per-capita in the West Bank and Gaza, and 10 percent in Israel by 2024.

Other alternative options, such as coordinated or uncoordinated unilateral withdrawal, and nonviolent resistance, have a less profound impact on both economies. Though Israel would appear to gain more in absolute terms from a two-state solution, and lose more in absolute should violence resume, in relative terms the gains and losses are way greater for the Palestinians.

Power asymmetry

This is not surprising, considering the power asymmetry between the two protagonists. Consequently it skews the role economics can play in bringing peace. The Palestinians recognise it as a source of vulnerability and would not like to be blackmailed over this; in the Israeli mind it is a bonus and not of vital interest. This explains to an extent why the economic factor is not a deciding, or even highly prioritised, aspect for the decision makers on both sides.

The Israeli economy, with all its difficulties and inequalities, is doing quite well. For Israel’s current decision makers the potential economic gain, even on the scale suggested by this research, does not justify the territorial concessions required for a two-state solution and definitely not the security implications of an independent Palestinian state. The leader of one of the main partners in the current Israeli coalition government, Naftali Bennett, said in the past that a Palestinian state will destroy the Israeli economy. His lopsided logic argues that a Palestinian state will become a safe haven for anti-Israeli militancy, which will interrupt normal life in Israel. He ignores the fact that in the period before the outbreak of the Second Intifada both economies enjoyed economic growth, especially the Palestinian one which experienced unprecedented economic prosperity. It was in fact a lack of political solution, which led to violence and the Second Intifada. For the Palestinians the lure of improving economic conditions is very tempting. Yet, it would be naïve to suggest that the Palestinians would abandon a just and fair resolution to issues such as borders, territory, refugees or Jerusalem in return for economic benefits.

Economics of two-state solution

The economic rational for a two-state solution is evident both in the experience of the 1990s, and from research such as that presented by the Costs of the Israeli-Palestinian Conflict. Nevertheless, to make it count as a major aspect of a peace process there is a need for leadership, which sees economic development not only as an added value for a peace process, but as one of its major pillars. It could be utilised as a tool to mobilise the popular support for difficult concessions on both sides, as well as an essential source for sustaining peaceful relations between both peoples in the long-run. In addition, donor countries and international investors can positively contribute by sending a unified and coherent message, that a genuine peace between the Israelis and Palestinians will bring economic benefits for everyone – not only for corrupt elites. This could encourage grassroot, bottom-up pressure to resume the peace negotiations.

Politics of fear

Tragically, the opportunity to improve the standard of living and human development is sacrificed for those intangible aspects of the conflict beyond the remit of RAND’s research. For instance, the politics of fear and distrust have increased throughout the peace process. Violence, bloodshed and destruction make both sides disillusioned with each other and the merits of the peace process. It deepened rifts within both societies and between them.

Religious-nationalism mixed with security perceptions has provided the justification for embarking on the Jewish settlements project in the Palestinians occupied territories – one of the major and most visible obstacles to peace. The consequences of these activities are reflected on the Palestinian side with the emergence of the Hamas and their original demand for an Islamic Caliphate in the entire territory of mandatory Palestine. As long as the conflict is hijacked by those distrusting religious-nationalists, who see security through the narrowest of prisms, it is hard to see how a more fact-based rational discourse can emerge. The sort of discourse that is required is one which attributes greater significance to the economy as a major component to reaching peace and maintaining it.
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Yossi Mekelberg is an Associate Fellow at the Middle East and North Africa Program at the Royal Institute of International Affairs, Chatham House, where he is involved with projects and advisory work on conflict resolution, including Track II negotiations. He is also the Director of the International Relations and Social Sciences Program at Regent’s University in London, where he has taught since 1996. Previously, he was teaching at King’s College London and Tel Aviv University. Mekelberg’s fields of interest are international relations theory, international politics of the Middle East, human rights, and international relations and revolutions. He is a member of the London Committee of Human Rights Watch, serving on the Advocacy and Outreach committee. Mekelberg is a regular contributor to the international media on a wide range of international issues and you can find him on Twitter @YMekelberg.