The economic costs of military rule

Israelis cannot treat the occupation as something that merely affects them in the eyes in the world while their economy keeps paying a heavy price for its continuation.

By Shlomo Swirski and Yarom Hoffman Dishon

Palestinian construction workers in an Israeli settlement (Photo by Yotam Ronen/
Palestinian construction workers in an Israeli settlement (Photo by Yotam Ronen/

The social-economic cost of the Israeli-Palestinian conflict is spoken about far less than the human cost or the price Israel pays on an international level. And when the social-economic costs do get brought up, the leaders of the economy always stress that this is a relatively small price to pay that have a short-term negative effect on the market. This position only lends to the idea that the conflict can be “managed,” and does not require a peace agreement. Education Minister Naftali Bennett arrogantly expressed this idea when he likened the Palestinian problem to “shrapnel in the ass” that must be taken out. This approach is nothing short of delusional, and both Israeli society and the Israeli economy are paying a heavy price for the continuation of the conflict. Here are seven reasons why:

1. Economic instability

A lack of a peace agreement makes Israel vulnerable to harm and instability. Growth, investments, trade, tourism and work days all take a hit. Furthermore, the image of Israel as a stable, reliable and safe economy for investment is also harmed. The GDP per person may have grown over the past decade at the same rate as in Germany and the United States, but this is not comforting when taking into account that the GDP per person in these countries is significantly higher than that of Israel. In order to reach the same standard of living as in other Western countries, we must grow at a higher rate than them for an extended period of time. The continued conflict with the Palestinian makes this very difficult.

2. Credit rating

The conflict makes improving Israel’s credit rating, which is relatively low, a difficult task. If, according to the UN’s Human Development Index, Israel is rated 19 out of 187 countries — respectable by all accounts — it finds itself 30th on Standard and Poor’s credit rating.

3. The boycott threat

If in the past the heads of the country tended to diminish the dangers of the international boycott movement, today the situation is different. In January 2014, former Finance Minister Yair Lapid warned that: “If the negotiations with the Palestinians get stuck or end and we wake up to a reality of a European boycott, even a partial one, the Israeli economy will take a hit, every Israeli citizen will be directly affected, the cost of living will go up, the budgets for education, health, welfare and security will be cut and many international markets will be closed off to us.” Prime Minister Benjamin Netanyahu finally recognized the problem when in May 2015 he appointed Minister Gilad Erdan to deal with the issue.

4. Neoliberalism

Since 1985 successive governments have been implementing a neoliberal economic policy inside Israel, which seeks to both diminish government intervention in the market and cut back on spending. However, Israel’s neoliberal policies stop at the Green Line: the Israeli government has always been a dominant player in building and developing settlements in the occupied territories. Successive Israeli governments have been directly involved in this process, from land allocation and building housing units; through providing infrastructure, roads and industrial zones; and extra funding for social services that promise a high standard of living.

5. Government funding for municipal budgets

A clear example of how the government functions differently on both sides of the Green Line is the amount of government funding for local councils. Between 1991-2012, the most of the government funding intended primarily for education and welfare (per person) was directed toward the settlements: in 2012, it stood at an average of NIS 2,695 per person, as opposed to NIS 2,277 in Arab towns and NIS 1,892 in development towns. Meanwhile, government funding to local councils stood at NIS 1,015 in the settlements per person, as opposed to NIS 885 in Arab towns inside the Green Line and NIS 671 in development towns.

6. Public housing

An additional example is the building of public housing. For at least the past two decades inside the Green Line, Israeli governments have forgone responsibility for public housing and passed it on to the business sector. Beyond the Green Line, the government continues to take an active role in building. Throughout the 90s the government built more than 50 percent of the houses in the Judea and Samaria District, which until 2005 included the Gaza Strip.

7. A social-economic agenda

The conflict has taken over the political agenda in Israel, and the attitude toward the conflict defines the political positions of individuals and political parties more than the attitude toward social and economic issues. Important issues such as the high poverty rate are pushed to the side with every fresh round of violence. One example out of many: before Operation Protective Edge, everyone spoke about the Alaluf Committee’s recommendations. Two weeks after the beginning of the operation, it was announced that the discussions on providing a budget to implement the committee’s report were cancelled due to the violence.

This article was first published in Hebrew on Haokets. Read it here.

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