The Economics of Occupation

JERUSALEM--Based on their representatives' performance at the Madrid peace conference, Palestinians have suddenly been rehabilitated in the eyes of the U.S. and much of the rest of the world's media. But, although this may have long-term benefits, the vast majority of Palestinians in the Occupied Territories are facing immediate economic problems that an improved world image does not begin to address. The Palestinian economy, which deteriorated steadily during the first three years of the intifada, or uprising, has suffered tremendously since Iraq's invasion of Kuwait in August 1990.

The Occupied Territories are "an economic disaster zone," says Sateb Irakat, a political scientist at Al Najah University in the West Bank. With 80 percent of the population living below the poverty line and unemployment rates ranging from 30 to 65 percent, depending on the region, "we [practically] don't have an economy anymore," Irakat says. "We don't need economists, we need magicians."

Forced dependency

Since Israel occupied the territories in 1967, Israeli authorities have sought to limit economic development in the West Bank and Gaza, make them economically dependent on Israel and force the Palestinian workforce to become a source of cheap labor for Israeli business.

As an occupying power, Israel has maintained tight control over the uses of land and water. It has required Palestinians to obtain permits for digging new wells, for example, and not a single new Palestinian irrigation well has been approved since the occupation. Israeli land seizures have continued throughout the occupation, with Israeli settlers and the military now controlling more than half of the land in the West Bank and Gaza. Palestinians have been steadily, and literally, losing ground.

Israel has refused to allow Palestinian businesses to compete with Israeli enterprises. A June 1991 seminar of economists and business people convened by the Coordinating Committee of Non- Governmental Organizations (CCINGO) in Jerusalem concluded that "the major impediments [to development in the Occupied Territories] are those imposed by a military regime determined to protect its own commercial interests at the expense of Palestinian growth." Participants pointed to punitive tax policies, bureaucratic delays, inaccessibility of basic communications facilities, including telephones, and a bewildering array of required permits as some among many problems facing Palestinian entrepreneurs.

By ensuring that few jobs will be available in the Occupied Territories, Israeli policy has given Palestinians little choice but to seek work in Israel, where they have been segregated in low-paying jobs. Although Palestinians formally need permits to work within Israel's borders, from 1971 until the beginning of the intifada in 1987 that requirement was not enforced. Palestinians have constituted a cheap source of labor for the agricultural, service and construction industries, and, says Maher Nasser of the United Nations Relief and Works Agency (UNRWA), allowing Palestinians to work within Israel diluted opposition to the occupation by giving young men something to do and making possible some economic improvement.

Those Palestinians who have found work in Israel have been subjected to discriminatory treatment. Chana Safran of Kav La' oved (Workers' Hotline), a Tel Aviv-based organization which seeks to protect the rights of Palestinian workers in Israel, reports that these workers pay a higher tax rate than Israeli workers, receive fewer benefits, are often subjected to harassment and are not defended by the Histradut labor federation--even though 1 percent of their wages are paid to Histradut. Nonetheless, these workers' income has been a vital component of the Palestinian economy.

Resistance and repression

The Palestinian economy entered a new phase with the eruption of the intifada in December 1987. Palestinians sought to disengage from the Israeli economy, holding strikes, boycotting Israeli goods and trying to create an autonomous economy. Israel responded with harsh repression designed to destroy economic self-sufficiency efforts. The result was a substantial decline in the Palestinian standard of living, exacerbated at the end of 1988 by the devaluation of the Jordanian dinar, the currency most widely used in the territories. A number of factors contributed to the decline:

• The daily afternoon strikes called by the Unified National Leadership of the Uprising took a huge toll on all aspects of the economy within the territories.
• The combination of the uprising and the military response damaged the tourist industry, which had been a major contributor to the Palestinian economy, bringing in $90 million a year.
• Many of the Israeli military's punishments have had economic ramifications. Most notable have been 24-hour curfews imposed on towns, villages and refugee camps. According to "No Exit: Israel's Curfew Policy in the Occupied Palestinian Territories," a June 1991 report of the Jerusalem Media and Communications Center (JMCC), from the beginning of the intifada through the end of 1990, "every Palestinian living in the Occupied Territories had spent an average of approximately 10 weeks under in-house curfew." JMCC tabulated over 7,800 curfews imposed by the Israeli military through December 1990. Curfews have led to a direct loss of income by preventing those with jobs from going to work. Additionally, curfews, along with frequent strikes, have caused a high rate of Palestinian worker absenteeism, frustrating Israeli employers, who have become less willing to hire Palestinians.
  The position of Palestinian workers in Israel worsened with the influx of Soviet Jewish immigrants. Some employers began to turn to Soviets to fill some of the jobs traditionally held by Palestinians. In October 1990, hawkish Israeli Housing Minister Ariel Sharon, reiterating prior calls, urged that the number of Palestinian workers in Israel should be dramatically reduced, recommending that employers fill their jobs by hiring Soviet immigrants.
• Palestinian efforts to compensate for the costs of protest by relying on locally made products were crushed by Israel. Military responses, such as curfews, interfered with development efforts, and Israeli authorities relied on the regulatory apparatus--denying various licenses and imposing high taxes, for example--to further stifle development projects.

War-time economics

Entering the Gulf crisis period in a precarious position, the Palestinian economy was not equipped to handle the major setbacks it would soon encounter.

First, with the Iraqi invasion of Kuwait, came the loss of remittances from Palestinians working in Kuwait. Four hundred thousand Palestinians lived and worked in Kuwait, where the economy depended heavily on foreign labor. Before the crisis, Palestinians working overseas, primarily in Kuwait but also in other countries, including Iraq, sent approximately $400 million to the Occupied Territories each year, one-fifth of the West Bank and Gaza's $2 billion economy. Remittances from Kuwait stopped with the invasion. After the war, Kuwait expelled tens of thousands of Palestinians, even though most analysts-- including those of the Kuwaiti government--believe only 10 percent collaborated with the Iraqi invaders. Remittances have now fallen to a level of only $100 million a year, according to the UNRWA's Nasser. Palestinians returning to the territories from Kuwait after the war have added another burden to the economy, since they are not likely to find work.

Second, the Gulf states which supported the war against Iraq cut off aid to the Occupied Territories. While there is some dispute about how much aid actually reached the territories before the war and how useful it was, some sources say the cutoff will cost the Palestinian economy more than $100 million annually.

The third war-related blow to the economy was the Israeli- imposed, war-time curfew on the West Bank and Gaza. From January 17 to the second or third week of February (depending on the area), Palestinians in the Occupied Territories were confined to their houses 24 hours a day, with reprieves of only a few hours every three days to a week to allow residents to replenish their supplies. From mid-February to early March, the Israeli military allowed 8-to-12-hour reprieves in selected areas, though they continued to closely monitor and tightly regulate Palestinian movements. Some Palestinians were able to return to jobs in Israel during this period, though only if they could obtain passes from the Israeli authorities. The curfew was gradually rolled back in March, with the last blanket curfew lifted on March 24. As it lifted the curfew, however, the Israeli military implemented an elaborate pass system, regulating movement within the Occupied Territories and between the territories and Israel.

The cumulative effect of the curfew was completely devastating to the economy. During the first weeks of the curfew, industry in the Occupied Territories was almost totally shut down. Except for 32 food and pharmaceutical factories, which were allowed to operate in the second and third weeks, all of the 4,200 industrial enterprises in the Occupied Territories were closed through the third week of the curfew, according to the Palestinian Economic Planning and Coordinating Committee (PEPCC). PEPCC estimates that 93 to 95 percent of all industrial production was lost in the first month of the curfew.

Wages lost by Palestinian workers in both the territories and Israel amounted to between $56 and $65 million in the first month of the curfew, according to CCINGO. UNRWA estimates lost wages among Gazans from January to March to be $47.6 million. Because most families in the Occupied Territories have little or no savings and rely on incoming wages to provide for their basic needs, these losses imperiled many Palestinians' existence.

The curfew also shut down the agricultural sector in the Occupied Territories. Most farmers could not return to their fields on a regular basis until mid-March, by which time "irretrievable damage to crops and livestock had occurred," according to the JMCC's report "No Exit." Farmers were unable to harvest ripe crops, which rotted in the fields, unable to tend to planted fields and unable to properly prepare for the next season, with much of the land normally prepared in the winter months left fallow. Livestock farmers could not graze their animals, resulting in animal weight loss and increased dependence on feed imported from Israel. "No Exit" cites statistics which place the overall loss to the agricultural sector at between $5 and $20 million in the first month of the curfew, with additional losses experienced in the next month and in the longer term.

As the war ended and the curfew was gradually lifted, Israel stepped up its economic pressure on the Palestinians. Land seizures by the Israeli military accelerated, so that the military and Israeli settlers now control more than two-thirds of the land in the Occupied Territories. Israeli employers, prompted by government exhortations, dismissed thousands of Palestinians after the war, with many denied the severance pay to which they were entitled, according to the Workers' Hotline. The Israeli authorities also rescinded the old laissez-faire policy which enabled Palestinians to work inside Israel without permits, with the government now penalizing employers who use unlicensed workers. Work permits are not easily acquired, however, since Israel grants them only to Palestinians who receive a security clearance and who have paid their taxes. The authorities will only issue permits for specific jobs, preventing Palestinians from working as day laborers, which they often did before the war.

A bleak future

By almost any measure, the prognosis for the Palestinian economy is extremely bleak. Israel is now loosening the ties that have linked the Palestinian economy to the Israeli market in a subordinate role over the last two decades, even as it has undermined the basis for an independent Palestinian economy and as many other supporting pillars of the economy--such as remittances and tourism--have been weakened.

In May 1991, under international pressure, Israel announced a new policy of encouraging industry within the Occupied Territories. Later, Israeli Defense Minister Moshe Arens stated that he would "help Palestinians find new markets for their agricultural goods" and "make life easier for Palestinian businessmen." Israeli Brig.-Gen. Gad Zohar announced in November that new businesses in the territories would be exempt from taxes for their first three profitable years and that Israel would build infrastructure for new factories. Palestinian activists, however, do not believe the Israeli proposals will significantly affect the economy. Too many restrictions--such as limited access to the Israeli market--remain, they argue. In fact, many contend that until Palestinian development is free to proceed without interference from Israel, reforms like those proposed by Israel or international aid might actually strengthen the dependent nature of the Palestinian economy.

Unfortunately, as long as Israel maintains political and military dominance over the Occupied Territories, the Palestinian economy is likely to remain stunted. As a result, the Palestinian standard of living is likely to remain artificially--and tragically--low for the foreseeable future.