Palestinian Studies

2014 Workshop

Raja Khalidi

Economist, Center for Development Studies, Birzeit University

Economies at the Peripheries –Reconnecting the Fragmented Economic System of Palestine

Israeli per capita income is today 8 times that of Palestinians (compared to 1944 when the ratio was only 2:1) and the Israeli economy dwarfs the Palestinian economy by 25:1. In its 21st century version, dualism posits that the Arab-Jewish development chasm that has emerged since 1948 and in particular since 1967, is simply a continuation of the old story. According to this version of history, a Jewish (European) industrial, capital and technological head-start began a century ago, while a socially/ politically fragmented and culturally-constrained Arab population has yet to fully shed its agrarian roots and embrace “modernization” and the pursuit of utility. All they need is a good dose of market-based economic liberalism and the comparative advantages of each economy will certainly realize mutual welfare advantages, ceteris paribus (i.e. even under current conditions).

In the eyes of dualists, the notion that these yawning gaps have been accentuated, or that an adverse path of dependency has been created long ago, as a result of the gradual colonization of Palestine and the attrition of its Arab indigenous economic resources and leverage, is “politicization” of pure economic analysis. Likewise mainstream economic thought discounts the systemic imbalances that Prebisch, and UNCTAD since, demonstrated to be at the root of the global development challenge and consider as “ideological” the idea that the persistence of significant economic and social gaps between rich and poor countries is attributed to too much, rather than not enough, liberalization.

Indeed, when surveying the Palestinian Arab economy in its broadest geographic extent (including those of the 4.5 million Palestinians in the occupied territories and of the 1.2 million Arab citizens of Israel), Prebisch’s insights on the structural dependency of the poor commodity producing periphery on the prosperous industrialized centre seem especially fresh. This provides in turn a helpful entry point for going beyond the misleading picture of market normalcy implied by dualist and neoliberal interpretations of the Palestinian-Israeli economic relationship.

Certainly in this case, the economic relation between occupied Ramallah or Gaza and Tel Aviv is at a different level of disaggregation than the systemic imbalance between Africa and Europe, for example. But dependency theory was rooted in a historical understanding of the adverse economic relation between colonial powers and the regions of the world they conquered since the 16th century.  For this reason, and with the increasing explanatory failure of mainstream analyses of Palestinian development, an “old-school” approach seems an apt framework for comprehending the Palestinian-Israeli economic entanglement, especially today, now that the inevitable logic of unfettered colonization and exclusion has revealed all its dimensions.

Today, Israeli settlement and capital expansion proceeds apace from the industrialized centre into all areas of Eretz Israel regardless of borders (real or invisible) and with growing Palestinian resignation, if not official acquiescence. In the sixty five years of its existence as a State, Israel has succeeded by design or default, in shaping is own Arab economic peripheries, from which it extracts and appropriates at will natural resources, labour, final consumption and realizes a range of fiscal leakage and monetary segniorage gains. If Arab dependency was not the intention, it surely seems to have been the inevitable outcome of a prolonged struggle between Jewish and Palestinian nationalism, with the latter’s fortunes fading with every new Israeli settler home built in Jerusalem and the Jordan Valley.

Official treatments of the Palestinian economic “system” may still try to contrast one Palestinian economy (in the West Bank and Gaza Strip occupied in 1967) against one Israeli economy. But realities on the ground, as well as the dynamics underpinning the systemic relationship between the dominant Israeli-Jewish macro-economy and the Palestinian-Arab micro-economies (or markets) within its orbit, belie such static dualism and instead point to a very special case of a centre-periphery dependency syndrome.

An alternative narrative concurs that indeed there is a “Palestinian economy” within the historic territory of Palestine/Eretz Israel. And two distinct economic models do continue to coexist within that territory, one emanating from the predominant globalized, industrialized, financialized, technologized and OECD-ized Jewish economy of the State of Israel. Within the overall Israeli economic/security/colonial envelope, an Arab economy also persists, diverted from its pre-1948 development trajectory by the rude facts of colonization and regional geo-politics. But this Arab economy is not homogenous, connected or a single coherent entity, like its Jewish “counterpart”, and hence is not the “other party” to a defunct dualist model. And it is neither post agrarian, nor industrializing, neither a service nor export economy. Instead, its transformation (or more aptly, deformation) remains suspended in the web of interests associated with the endurance of the Israeli state-building project, subject to the no less degrading impacts of local, regional and global capitalist expansion.

So, the “economy of Palestine” is actually constituted by those different (indeed diverging) core Arab regions, which despite economic attrition or stagnation have somehow resisted the absolute exclusivist logic of colonial encroachment, by legal, demographic or political means. These are the remnants of the indigenous Arab economy of Palestine: at least four, if not six, distinct enclave economies, scattered from the North to South and East to West of the area under Israeli sovereignty, separated from each other in enclosed and segregated zones.

Each region is on its own path of dependence or autonomy in relation to the economy of the Israeli metropole, having lost abruptly (in 1948, then from different shocks since) the historic contiguity that would have kept them together in the dualist scenario.  Each is peripheral to the Israeli centre, despite continued resource extraction at various levels. Each is peripheral to the regional (Arab) and global economies, still dependent on the “national” Israeli economy for external trade, financial and other access. And in most aspects, with some important exceptions, each is peripheral to the other, having been divided forcibly in 1948, reconnected in 1967, then rudely separated since 2001, and only reconnected partially in recent years, under new, stringent conditions.

This is the reality of the Palestinian economic “non-system” in Palestine today, both on the map and on the ground. Regardless of the outcome of the ongoing efforts to save the two-state solution, for policy makers and analysts to continue to flog the dead horse of a Ramallah/Tel Aviv dualist economic model, is not useful for understanding the actual balance of economic power. Nor can such misguided ideology inform an effective development strategy for an Arab economy in Palestine, which must be rooted in the peripheries so as to reconnect them in a new configuration suited to the demography, geography and politics of the 21st century phase of the Palestinian people’s confrontation with settler colonialism.

Raja Khalidi is a US citizen whose family comes from Jerusalem, and he has lived mainly in the Middle East and Europe. He was trained as a development economist, with a B.A. (Hons) from Oxford University and M.Sc. from University of London (SOAS). He has conducted research and published and lectured widely on Palestinian economic conditions in Lebanon, in the Arab region in Israel, in the occupied territories and most recently, in East Jerusalem.

He began his professional career with TEAM International in Beirut from 1981-83 and was one of the team of experts charged with preparing Welfare Association’s first programme Plan in 1984. He was a staff member with the United Nations Conference on Trade and Development (UNCTAD) from 1985-2013, including as Coordinator of its Programme of Assistance to the Palestinian people from 2000-2006. He also headed the UNCTAD Debt and Development Finance Branch, and as Chief of the Office of the Director in the Division of Globalization and Development Strategies he was closely involved in managing UNCTAD’s response to the global financial and economic crisis. He has served as a member of The Arab Society for Economic Research, an advisory member of the Welfare Association, a founding member of the Palestine Family Relief Fund and member of the Board of Trustees of the Palestine Economic Policy Research Institute, MAS.

He is currently Research Associate at Bir Zeit University, Center for Development Studies, Palestine.