George Gilder - The Israel Test

The second era began after the 1967 war, when Israel routed four hostile invading armies in six days. During this second period, Israel took over the West Bank and Gaza and administered its economy.

During the following 20 years under Israeli management until the First Intifada of 1987, the West Bank and Gaza comprised one of the most dynamic economies on the planet, with a decade of growth at a rate of roughly 2 5 percent per year from 1969 to 1979. Annual investment in constant dollars soared from under $10 million in 1969 to some $600 million in 1991, rising from 10 percent of GDP to around 3 0 percent in 1987 (maintained through 1991). The Arab population rose from roughly one million in 1967 to almost three million in some 261 new towns. Despite the nearly triple growth in population, per capita income also tripled in the West Bank; and in Gaza, it rose from $80 to $1,706 from 1967 to 1987. Meanwhile, the number of Jewish settlers in the West Bank and Gaza increased only to 250,000.

During this period when the West Bank and Gaza were administered by Israel, the territories received little foreign aid, the economy boomed, and the Palestinians dramatically augmented their numbers, their business activity and their standard of living.

Efraim Karsh, who has been described by the scholar Daniel Pipes as the preeminent historian of the modern Middle East writing today, provides the details:

At the inception of the occupation [in 1967], conditions in the territories were quite dire. Life expectancy was low; malnutrition, infectious diseases, and child mortality were rife; and the level of education was very poor. Prior to the 1967 war, fewer than 60 percent of all male adults had been employed, with unemployment among refugees running as high as 83 percent. Within a brief period after the war, Israeli occupation had led to dramatic improvements… [T]he number of Palestinians working in Israel rose from zero in 1967… to 109 thousand by 1986, accounting for 35 percent of the employed population of the West Bank and 45 percent in Gaza. Close to two thousand industrial plants, employing almost half of the work force, were established in the territories under Israeli rule.

During the 1970s, the West Bank and Gaza constituted the fourth fastest-growing economy in the world… with per capita GDP expanding tenfold between 1968 and 1991… Life expectancy rose from 48 years in 1967 to 72 in 2000… By 1986, 92.8 percent of the population… had electricity around the clock, as compared to 20.5 percent in 1967… [Similar advances occurred in hygiene, healthcare, child mortality, immunizations, and communications, which all rose to levels equal or exceeding other Middle Eastern countries]. The number of schoolchildren… grew by 102 percent… Even more dramatic was the progress in higher education. [From zero in 1967] by the early 1990s, there were seven [universities] boasting some 16,500 students.

This second era of Palestinian progress and prosperity came a cropper in 1987, when Palestinian Arab terrorists responded to the good fortune of their people the same way as they did in the 1930s. In a process dubbed by Western apologists as an “Arab Awakening,” Arab leaders distracted the “street” with anti-Semitic chimeras. Fearing irrelevancy as hundreds of thousands of Palestinians collaborated with Jews, PLO agitators fomented the First Intifada, launching thousands of attacks on Israeli targets and putting economic growth into reverse.

Once again, the power of anti-Semitic politics, with international diplomatic gulls and gobblers in tow, overcame the upsurge of economic advance, delivering the Palestinian Arabs once again into the clutches of a rapacious gang of neo-Nazis. Thus began the woeful third era.

As Oussama Kanaan wrote in 1998 in the International Monetary Fund Report, Uncertainty Deters Private Investment in the West Bank and Gaza Strip , “The Peace Process… had the potential to yield substantial welfare gains, largely through rapid growth in private investment… However, a look at the evolution of private investment since 1993 reveals a radically different and disturbing picture… In 1993 — 97 real private investment is estimated to have declined by an average of 10 percent per year and private investment’s share in GDP to have declined from 19 percent of GDP in 1993 to 10 percent of GDP in 1997. What went wrong?”

The IMF report presents a raft of data from the dismal science to document the collapse. Although military measures to suppress the Intifada did restrict economic activity, the real cause is the Bauer syndrome.

Previously, under Israeli administration, the Palestinians in the West Bank and Gaza were oriented toward the possibilities of enterprise and economic growth complementing Israel’s own economy. For a decade, the territories represented a kind of unregulated “Wild East” for Israeli entrepreneurs and actually grew faster than Israel did. With Yasser Arafat banished, the Palestinians in the West Bank and Gaza enjoyed rapid economic growth in a climate of minimal violence.

Beginning in 1993, however, the United States and the United Nations essentially gave away the store to Arafat. Rehabilitated by the 1993 Oslo Accords, Arafat returned from his exile in Tunisia in July of 1994, where he had fled from Lebanon in 1982. All the power — and money — flowed to the PLO’s leader and from there heavily to his personal, numbered Swiss bank account. With foreign aid pouring in by the billions to the terrorists, the result was the emergence of Hamas, battling Arafat’s Fatah organization for power and perks and mobilizing the forces in Palestine out of favor with the PLO.

The increase in foreign aid after 1993 was associated with a 40 percent decline in per capita income in the first half of this decade together with mounting anti-Israel terrorism and anti-Semitic animus. As the PLO focused on politics and sedition, the Palestinian economy shrank, and dependence on foreign aid increased along with incessant complaints about the inadequacy of that aid. In this environment, Palestinian entrepreneurship collapsed amid much talk by Arafat and his minions of the “humiliation” of working for Jews.

From its outset early in the twentieth century, Palestinian nationalism itself was an artificial construct, characterized by hostility toward Jews, as well as toward capitalism. Palestinian political leaders were indifferent to enterprise and hostile to repeated international schemes for joint Arab — Israeli development of the Jordan River basin. Palestinian political behavior was so obnoxious that their leaders were rejected by every Arab state in which they sought refuge, including the contiguous and predominantly Palestinian state of Jordan when it ruled the West Bank between 1948 and 1967. But after 1967, and under Israeli rule, the Palestinians proved that by focusing on enterprise complementing the Israeli economy they could become prosperous.

In the face of this history, international organizations, from the World Bank to the United Nations Conference on Trade and Development (UNCTAD), have performed a series of further analyses of the Palestinian economy, including the experience of the Arabs within Israel. Their consensus is that foreign aid has been inadequate to meet the acute needs of the Palestinian Arabs. Meanwhile, the growth of the Israeli economy is ascribed largely to its exploitation of the Palestinians.

In essence, the growth of the Israeli economy emerges in these studies as the gigantic and intolerable “imbalance” in the region. This imbalance is seen to perpetrate huge “gaps.” Contemplating this weighty matter, academic and political sages imagine that a more “balanced” outcome, gapwise, would be “a convergence of Israeli and Arab incomes in the area.” The absence of such a convergence is somehow Israel’s fault, or, for the more globally-oriented, the fault of world capitalism.