The Economic Cost and Opportunity of Conflict in Israel

The Economic Cost and Opportunity of Conflict in Israel

October 2, 2018

The Right to Work, while enshrined in international human rights law, is a privilege that many in the West take for granted. We were fortunate to sit down with Muslim Public Affairs Council (MPAC) Program Fellow Ilhan Cagri based in Washington D.C. on the working and living conditions of all peoples living under the current Netanyahu Administration in Israel.

By Joanne Leila Smith and Kumar S

The conflict in Israel is often portrayed as a religious war between Muslims and Jewish peoples. The reality is quite different. Acquisition of lands without restitution and the required infrastructure development as a result of settlement expansion is big business.

We asked MPAC Program Fellow Ilhan Cagri to share her experiences on the working conditions, economic impact and public infrastructure of peoples living in both the Settlements and Gaza after visiting Israel in November 2017 and February 2018 and the human cost of living under the bifurcation between Jews and Non-Jews.

“The propaganda machine is intense in Israel. The Netanyahu Government has had to create apartheid not because it is afraid of the Palestinians, but because it is afraid of the Jewish people discovering the humanity of the Palestinians and the enormity of the injustices heaped upon them by the Israeli Government. The lives of Jewish peoples are circumscribed by this notion of the Palestinian as the bogey man. It creates real trauma for the Jewish people living under that kind of manufactured fear. To further cement the otherness of the Palestinians, the Government refers to them as Arabs who should ‘go back to whatever Arab country they came from’. The divide in Israel is not between Israelis and Arabs. In the Occupied Territories of the West Bank, Palestinian Christians suffer the same apartheid conditions as Muslim Palestinians. In Israel proper, the laws do not discriminate between Jews and Arabs; they discriminate between Jews and non-Jews. Thus Palestinian Jews who are now Israeli citizens are not discriminated against in the same way as Palestinian Christians and Muslims. The rules for Non-Jews regarding where you can live, where you can work, who you can marry, what property you can own are very different from the rules for Israeli Jews. This inequality was recently made part of the Israeli Constitution with the adoption of the Nationality Law. Only if you are Jewish can you be afforded the full rights and privileges that come with Israeli citizenship,” says Cagri.

The economic and human costs of the decades-long conflict have been substantial.

The malnutrition rates of peoples living in the Gaza Strip and parts of West Bank is now at a level not dissimilar to those living in Sub-Saharan Africa, according to a report submitted by the Members of Parliament of the UK House of Commons under the ‘Commons International Development Committee’. The report claims that the Palestinian economy is nearly collapsed.

The Committee attributed the ‘fenced occupied territories’ as being a major contributor to destroying the Palestinian economy and creating widespread poverty in the region. The Netanyahu Government has blocked all foreign humanitarian and development work in the Gaza and West Bank.

Gaza is significantly poorer than it was in the 1990s. Its economy has grown only 0.5 percent in 2017, according to The World Bank report. The annual income per person fell from USD 2,659 in 1994 to USD 1,826 in 2018.

In 2017 the Gaza Strip had the highest unemployment rate in the World Bank’s development database. The Gaza’s poverty rate stands at 39 percent. The World Bank claims this percentage would be higher if it were not for foreign aid funded by the United Nations Relief and Works Agency (UNRWA). According to the report, over 80 percent of the population is on some form of social assistance. Unemployment rates in the region is as high as 60 to 70 percent.

According to Cagri, the Right to Work for non-Jews under the Netanyahu Administration is non-existent.

“The city of Bethlehem in the Occupied Territories is completely surrounded by a 20-foot high wall. There are checkpoints that one must go through to enter and exit the city. Palestinians need Israeli Government permission to leave Bethlehem. Bethlehem is impoverished. There is no work because it has been choked of its economic vibrancy by the wall that surrounds it and separates the inhabitants from their agricultural lands and from commerce with other Palestinian towns and villages. Men apply for work permits to become day labourers. To get to work, the men line up at the checkpoint from 3am. I was there one evening to witness the experience these men go through every day. They wait in a tight enclosure similar to a cattle ramp, hundreds of men standing for hours not able to move. They are subjected to a procedure like customs at an airport when the checkpoint gate opens at 6am. The buses that transport the workers leave at 7am. If they don’t get through in time, they miss a day’s work.  Palestinians are not allowed on Israeli public transportation.  Work permits in Israel are free, but they come at a premium. This creates corruption, this is, bribes for permits. Many workers must work 15-20 days just to pay off the bribe they paid for the work permit, while the remaining days is the take-home income. There are frequent, unannounced, gate closures. If a kid throws a stone, the checkpoints may close for up to five days. The permits are only valid for six months. What was surprising for me was despite all this hardship the people in line were smiling and laughing. I expected tension and anger, but there was none. Just a lot of shouting because they had to yell to be heard across others. This was so different from the mood I experienced in the Israeli Settlements. There the people seemed sad. I thought, these people have grass, flowers and beautiful streets, community centres, and swimming pools but there was no joy. I found that very sad,” says Cagri.

According to Cagri, in the Occupied Territories, checkpoints are a daily part of Palestinian life.  School children and workers must also go through the checkpoints. The gates are open for one hour in the morning, 45 minutes at noon and only 1.5 hours in the evening.

“Watching these school kids have to push through the gates to get home at night is heartbreaking. Palestinian workers can work inside the Settlements – usually as domestic helpers. Buses from the settlements will pick up Palestinian workers and take them to work as they are prohibited from living inside the settlements. There is total segregation. They come in and they go home. They must carry their ID papers at all times. If you don’t have your papers you can’t get in and out and if you don’t have them on your person it is a crime,” says Cagri.

The impact of segregation on the domestic markets as well as opportunities for import/export have been far-reaching. In response to worsening conditions, The European Union coordinated an initiative called the Boycott, Divestments and Sanctions (BDS) of Israeli owned products and services. According to some experts, this move added to the economic woes of Palestinians. The initiative has pushed businesses out of the West Bank; disrupted film festivals, concerts and exhibitions from around the world where Palestinians and Israelis previously coordinated work with each other.

Israeli-owned enterprises are suffering under BDS too. While the companies lose trade, the working population is largely made up of cheap Palestinian labour, which reduces working opportunities in an already constrained job market.  There has been string of exoduses in the region because of lack of employment opportunities.

Jewish settlements in the West Bank are considered illegal by many in the international community. Different reports claim the Jewish population in West Bank is between 500,000 to 700,000.  According to Cagri, moving goods and trade between the villages are nearly impossible for local businesses as the Settlements are built as ‘tentacles’ that run between the towns and the villages creating barriers that Palestinians cannot cross.

“These walls cut off communications between villages, so people can’t trade with one another. If I had a poultry farm, I can’t sell my eggs to another village. There are designated roads that only Israelis are allowed to travel on, and these also bifurcate Palestinian territories. This segregation chokes off industry and the social and economic livelihood of the people. The Israelis service all utilities into the territories too. Water is a big problem because the Israeli Government frequently cuts off the water supply to the Palestinians. By contrast, the water to the Settlements is never cut.  Israeli religious law disallows collecting rainwater. You can tell which homes belong to Palestinians because they all have black water tanks on their rooftops where they store water that has to be brought in by truck when the public water supply is cut off. Inside the tanks, the water is unclean. To pay for water to come by truck is expensive. You can’t bathe, you can’t do laundry, you can’t flush the toilet.  They are living in third world conditions,” says Cagri. “The Netanyahu Administration is doing everything it can to make life unbearable for Palestinians in the hope they will leave”.

While the regional conflict dates back to the 20th century, it intensified in 1947 after the UN’s decision to end the British occupation of Palestine, by partitioning the country between Jews and Palestinians. The country saw an Arab invasion lead by Egypt, Trans-Jordan, Syria and Lebanon after the British left the country on 15 May 1948. It became a full-blown war from Israel-Palestine to Israel-Arab – from a war between militias to the war between sovereigns. The war gradually subsided between 1978-1982, with the signing of the peace agreement between Israel and Egypt. Without Egypt, it became impossible for Palestine to sustain a war against Israel reducing it again to a regional conflict.

With no Arab military coalition in sight, the Palestinians were left alone in their struggle for independence by themselves. This started in 1987 with the first ‘Intifada’ – war against the Israeli dominance, under the PLO with low arms use and minimal financial aid.

A 2014 report authored by Joseph Zeira and Tal Wolfson called The Economic Costs of the Conflict to Israel: The Burden and Potential Risks estimated the costs of defense spends in Israel from 1950 until 2010. The report claims military costs increased significantly at an average rate of 20 percent of the GDP annually between 1967 and 1980s and exceeding 30 percent for few years after 1973. Before 1967, the cost was around 7 percent of the GDP. By the mid-1990s the defense costs went below 10 percent and by 2010 they reached 7 percent of GDP.

Indirect costs are not included in the Defense budget – such as alternative cost of conscripts, alternative use of land, security guards, civil defense and related costs which takes the overall cost upwards of 12 percent of Israel’s GDP.  While costs are reducing year-on-year, it is still very high in comparison to international standards. Most advanced countries spend around 1.5 percent of their GDP.

The average annual rate of growth of output until 1973 has been 10 percent and after 1973 it has been only 3.5 percent till 2010. According to a Financial Times report, in 2014 the growth was even lower at 3 percent.

The military operations cost the country 0.6 percent of its gross domestic product (GDP) at the time when the Israeli economy shrunk by 0.4 percent. The technology and service-oriented economy was growing by 3 percent around that time and the report predicted a widened budget deficit at 3.4 percent of the GDP as against the targeted 2.8 percent for that year.

While defense costs have come down significantly over the years, for Israel, enabling fiscal stabilization and preventing economic crisis, has made it difficult for Israeli-owned businesses to thrive.  Israel is very vulnerable to business cycles and recessions. Previous wars were costly, but they increased aggregate demand and thus helped to avoid recessions or made them shorter.

Today, trade disruptions are very frequent, longer and unpredictable creating substantial economic uncertainty in Israel.  The hardest hit industry due to the conflict is Israel’s tourism industry, which accounts for nearly two percent of its economic output. There have been reported bursts of violent incidents between Israeli locals adding to lack of consumer confidence and pessimism, which has significantly reduced demand for consumption and investments. Prior to 1980, Israel suffered two short recessions and then four recessions post, of which two were sustained over long periods.

In light of the economic volatility and lack of consumer confidence due to the Israeli Government’s segregation policies, Cagri says that Settlements are big business.

“Settlements are more than a land grab. It’s also about Government incentives. The strategy in terms of getting people to move into a Settlement from say Tel Aviv or Jerusalem is to subsidize housing and utilities. Salaries are lower than the national average so labour is cheaper, and companies are incentivized through tax breaks much higher than outside the Settlements. This means that large corporations that operate inside the Settlements are making enormous profits by capitalising on nationalistic ideology and exploitation of cheaper labour,” says Cagri.

Cagri says one of the saddest things in the Occupied Territories is what happens to the children. Every day, there are broad indiscriminate raids and incarceration of Palestinian children under the age of 17.

“There are two separate legal systems in the Occupied Territories: one for Israelis and one for Palestinians who live under martial law. When an Israeli from the Settlements commits a crime, he is prosecuted under civilian law, in a civilian court and is given due process. Palestinians fall under military law without due process. Between 500 to 700 Palestinian children are arrested and sent to Israeli prisons every year. At least twice a week, soldiers break and enter into a house in the middle of the night, using a sound bomb, while the family are in bed. They just round up kids. It doesn’t matter if they have done anything or not. This is a strategy to maintain fear and control. There is an organisation called Military Court Watch, a husband and wife team of lawyers who monitor the treatment of Palestinian children in Israeli military prison. 98% of Palestinian children are arrested within one kilometre of a Settlement which shows how desperate the system is to make sure that the Settlements are not disturbed.  When a child is arrested, he is questioned for up to three days. He has no lawyer and he cannot see his parents.

In a typical case, the Palestinian kid is 15 years old, the Israel soldiers arresting him are 17 years old. Both are scared except the Israeli is the one with power. The treatment of the arrested youth is at the discretion of the Commanding Officer. The kids are put into a truck, sent to military base, bound and gagged. The kid stays outside for hours and is then subjected to interrogation for days.

When the child is finally brought to court, he sees his lawyer and his parents for the first time since his arrest. It is a military court and the judges are usually from one of the Settlements. This will be between 3 to 7 days after the arrest.

If he pleads ‘not guilty’, he will be sent back to jail to await a trial without jury. If the youth pleads guilty to a crime (whether he committed it or not), he can go home. Many arrested children exhibit severe trauma when they get home. There is bed wetting, fear and anxiety and social withdrawal. In some cases, they stop talking.  There is this whole underclass of mostly boys who are suffering from PTSD. These kids now have a criminal record so if they are arrested again, they will have to serve long prison sentences,” says Cagri.

According to Cagri, the recent uprisings in Gaza are not just due to economic woes and indiscriminate incarceration of Palestinian youth. Cagri says there is a ban on the import of many basic domestic products and even the daily caloric allowance of food is accounted for by the Israeli Government. Gaza is bound by the sea however they are forbidden to fish.

To try to resolve the decades-long dead-lock, the most popular proposition is the two-state theory.  US-based public policy think-tank RAND proposed five solutions predicting the best economic outcomes for a ‘two-state’ solution. The RAND report estimated Israel would gain USD 123 billion in economic terms over a 10-year period till 2024 in absolute terms as against USD 50 billion by Palestine. Proportionately, Palestine would stand to gain much more according to the report with average per capita income increasing by approximately 36 percent over what it would have been (if the situation remained as it was then) in 2024, versus 5 percent for the average Israeli.

A return to violence would incur a per capita loss of 46 percent of the gross domestic product in the West Bank and Gaza while a loss of 10 percent in Israel’s GDP during the same period. An escalation would cost Israel USD 250 billion over a decade. In absolute terms, the report claims that cost would be far higher.

RAND also conducted a cost-benefit analysis of other actions such as a coordinated unilateral withdrawal by Israel, uncoordinated unilateral withdrawal, nonviolent resistance, and violent uprising.

According to Cagri, because the West Bank is divided up into three non-contiguous areas there cannot be a two-state solution.

“The only solution is for Israel to become a unified democratic state. Israelis have to want true democracy. One state with one vote would mean an end to Jewish privilege, but not Jewish identity. As someone who works in the area of religious liberty in the US, we have a moral duty to advocate for religious communities that are being oppressed. In Israel and in the occupied territories to-day, Christian and Muslim communities are being oppressed. There are no winners in this. The Israelis are victims. The Palestinians are victims. It’s time the world stopped spending a lot of time, energy and money in order to deny what they are seeing,” says Cagri.


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