by Daniel Pipes
Jerusalem Post
December 27, 2007
http://www.danielpipes.org/article/5300
[JP title: "Turning Abbas's logic on its head"]
Western financial aid to the Palestinians has, I showed last week, the
perverse and counterintuitive effect of increasing their rate of
homicides, including terrorist ones. This week, I offer two pieces of
perhaps even stranger news about the many billions of dollars and
record-shattering per-capita donations from the West: First, these have
rendered the Palestinians poorer. Second, Palestinian impoverishment is a
long-term positive development.
To begin, some basic facts about the Palestinian economy, drawing on a
fine survey by Ziv Hellman, "Terminal Situation," in the Dec. 24 issue of
Jerusalem Report:
* Palestinian per year per-capita income has contracted by about 40
percent since its US$2,000 peak in 1992 (before the Oslo process began)
to less than $1,200 now.
* Per-capita Israeli income, 10 times greater than the Palestinians' in
1967 is now 23 times greater.
* Deep poverty has increased in Gaza from 22 percent of the population in
1998 to nearly 35 percent in 2006; it would be about 67 percent if not for
remittances and food aid.
* Direct foreign investment barely exists, while local capital mostly
gets sent abroad or is invested in real estate or short-term trading.
* The Palestinian Authority economy, Hellman writes, "is largely based on
monopolies in various industries granted by PA officials in exchange for
kickbacks."
* The PA's payroll is so bloated that the cost of wages alone exceeds all
revenues.
* A dysfunctional judicial system in the PA means armed gangs usually
decide commercial disputes.
Unsurprisingly, Hellman characterizes the Palestinian economy as "in
shambles."
Such shambles should come as no surprise, for as the late Lord Bauer and
others have noted, foreign aid does not work. It corrupts and distorts an
economy; and the greater the amounts involved, the greater the damage. One
telling detail: at times during Yasir Arafat's reign, a third of the
Palestinian Authority's budget went for "expenses of the President's
office," without further explanation, auditing, or accounting. The World
Bank objected, but the Israeli government and the European Union endorsed
this corrupt arrangement, so it remained in place.
The Paris conference for the "Palestinian state" raised US$7.4 billion in
pledges on Dec. 17, 2007. © V.Chemla/GIN
Indeed, the Palestinian Authority offers a textbook example of how to ruin
an economy by smothering it under well-intentioned but misguided
donations. The $7.4 billion recently pledged to it for the 2008-10 period
will further exacerbate the damage.
Paradoxically, this error might help resolve the Arab-Israeli conflict. To
see why, consider the two models, hardship v. exhilaration, that explain
Palestinian extremism and violence.
The hardship model, subscribed to by all Western states, attributes
Palestinian actions to poverty, isolation, Israeli roadblocks, the lack
of a state, etc. Mahmoud Abbas, the PA leader, summed up this viewpoint
at the Annapolis conference in November: "the absence of hope and
overwhelming despair … feed extremism." Eliminate those hardships and
Palestinians, supposedly, would turn their attention to such constructive
concerns as economic development and democracy. Trouble is, that change
never comes.
The exhilaration model turns the Abbas logic on its head: the absence of
despair and overwhelming hope, in fact, feed extremism. For Palestinians,
hope derives from a perception of Israeli weakness, implying an optimism
and excitement that the Jewish state can be eliminated. Conversely, when
Palestinians cannot see a way forward against Israel, they devote
themselves to the more mundane tasks of earning a living and educating
their children. Note that the Palestinian economy peaked in 1992, just
as, post-Soviet Union and post-Kuwait war, hopes bottomed out to
eliminate Israel.
Exhilaration, not hardship, accounts for bellicose Palestinian behavior.
Accordingly, whatever reduces Palestinian confidence is a good thing. A
failed economy depresses the Palestinians' mood, not to speak of their
military and other capabilities, and so brings resolution closer.
Palestinians must experience the bitter crucible of defeat before they
will drop their foul goal of eliminating their Israeli neighbor and begin
to build their own economy, polity, society, and culture. No short-cut to
this happy outcome exists. Who truly cares for Palestinians must want
their despair to come quickly, so that a skilled and dignified people can
move beyond its current barbarism and built something decent.
The huge and wasted outpouring of Western financial aid, ironically,
brings on that despair in two ways: by encouraging terrorism and by
distorting the economy, both of which imply economic decline. Rarely has
the law of unintended consequences worked so imaginatively.
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