Guest Columnist: In the West Bank, two houses of cards

The settlers and the Palestinians are each celebrating an edifice fetish of their own. Both will end badly.

Palestinian Woman 311 (photo credit: ASSOCIATED PRESS)
Palestinian Woman 311
(photo credit: ASSOCIATED PRESS)
Two construction crazes are under way in the West Bank these days. The first one resumed last week in the settlements, accompanied by speeches, balloons and other accoutrements of a political rally. The other is a much bigger one and has been going full force without fanfare across Area A.
The sight of construction cranes and hard hats warms the cockles of every heart, be it an economist, a politician or a businessman. For hack journalists, it’s a cliché used to illustrate the latest boomtown or gold coast. The joy elicited by freshly poured concrete and hammers pounding is so deeply embedded in our thinking that the disastrous building booms in America, Dubai and Spain have done little to dampen it.
Now, the settlers and the Palestinians are each celebrating an edifice fetish of their own. Yet, to use the economists’ understated term, they are both unsustainable. One is a function of bad politics, the other of bad economics. Both will end badly.
The end of the building freeze in the settlements is just too big a contradiction to last for long. Binyamin Netanyahu loudly declares his support for two states, while simultaneously inserting more Israelis just where that state is supposed to arise. Perhaps it’s all a sop to the settlers. Perhaps Bibi is confident that by the time they’re scheduling housewarming parties in Revava, he’ll be signing an accord in the White House Rose Garden.
However, what is more likely – even if you take the prime minister at his word about seeking an agreement –- is that the talks will drag on or be broken off yet again. Meanwhile, the population of settlers will grow and grow, feeding their mistaken sense that time is on their side, costing Israel valuable capital in the world of diplomacy and public opinion and increasing the political and economic cost when the day eventually comes that they must be repatriated.
THE PALESTINIAN building boom is no less a problem, even if at first glance it doesn’t seem that way. The International Monetary Fund “conservatively” estimated last month that the West Bank’s economy will probably grow 8 percent this year, a rate that puts it into the league of Asia’s champions. How is that possible? The conventional wisdom is that economic life in the West Bank is hamstrung by roadblocks, the separation barrier, lawlessness and corruption and Israeli restrictions on imports and exports.
The answer is that it isn’t possible, at least not in the real-world sense. Israel has eased the roadblock regime that strangles commerce, and Salam Fayyad has taken steps to clean up the Palestinian Authority’s finances and administration.
But the real reason the West Bank is booming is because of Western largesse – some $5.5 billion in three years, assuming everyone ponies up what they promised in 2010. That works out to an average of about $456 per person per year, which goes a long way in a place where per capita GDP is less than $2,000. Aid is equivalent to a quarter or more of the West Bank’s GDP, according to the IMF’s figures.
The lion’s share of that money is going to fund the PA’s budget deficit. It pays for too many teachers, government clerks, policemen and the like, not for new roads, schools or other investments that would develop infrastructure and provide the basis for long-term economic growth. It’s essentially a big make-work scheme aimed at buying social and political peace for Israel and the PA while Mahmoud Abbas negotiates a peace agreement and shows Palestinians that Hamas terror is the wrong way to go.
In fact, the Palestinian economy isn’t in good shape at all. The problems of Israeli barriers and Palestinian corruption haven’t gone away. They are just not as bad as they were before. (Even in Gaza, economic growth is surging – GDP will probably expand 16% this year, according to the IMF, because the tunnels are operating efficiently, Israel has eased its blockade and Hamas in its own kind of way has restored order.) When things go from rotten to less rotten, economic activity increases, but that doesn’t mean much. It’s making up for old losses. In the West Bank, the unemployment rate is 16% and the poverty rate 46%. Industry and agriculture contribute less to the economy than they did two decades ago. GDP per capita only returned to the level it was a decade ago in 2009.
THE KIND of things that would represent real economic growth, like private sector investment in new factories, improvements in farming or new services isn’t happening much at all because the West Bank remains a lousy place to do business.
So, all this cash washing through Jericho and Jenin goes where it can – into building homes.
The number of building licenses in the second quarter jumped by a third from a year earlier, and Reuters reports that land prices in Ramallah have jumped 30% in the last two years. Construction accounts for around 10% of GDP, the same level as in Nevada or Ireland before they crashed.
It would be facile to suggest that Palestinian national demands can somehow be satisfied simply by ensuring jobs and growth. But the opposite is certainly true: Whether it remains under occupation or gains independence, a West Bank whose residents are impoverished and have little to lose from a perpetual conflict is a danger to Israel. When the building ends and the donor dollars dry up, the danger will reemerge. Combine that with settler triumphalism, as Jewish communities expand while Palestinian cranes are idled and their operators unemployed, and the next boom will be start of the third intifada.
The writer is a financial commentator.