Turning Abbas' Logic On Its Head (How Palestinian Economic Collapse Will Hasten Peace Alert)

Western financial aid to the Palestinians has, I showed last week, the perverse and counterintuitive effect of increasing their rate of homicides, including terrorist ones. This week, I offer two pieces of perhaps even stranger news about the many billions of dollars and record-shattering per-capita donations from the West: First, these have rendered the Palestinians poorer. Second, Palestinian impoverishment is a long-term positive development.

To begin, some basic facts about the Palestinian economy, drawing on a fine survey by Ziv Hellman, "Terminal Situation," in the Dec. 24 issue of Jerusalem Report:

# Palestinian per year per-capita income has contracted by about 40 percent since its $2,000 peak in 1992 (before the Oslo process began) to less than $1,200 now.

# Per-capita Israeli income, 10 times greater than the Palestinians' in 1967 is now 23 times greater.

# Deep poverty has increased in Gaza from 22 percent of the population in 1998 to nearly 35 percent in 2006; it would be about 67 percent if not for remittances and food aid.

# Direct foreign investment barely exists, while local capital mostly gets sent abroad or is invested in real estate or short-term trading.

# The Palestinian Authority economy, Hellman writes, "is largely based on monopolies in various industries granted by PA officials in exchange for kickbacks."

# The PA's payroll is so bloated that the cost of wages alone exceeds all revenues.

# A dysfunctional judicial system in the PA means armed gangs usually decide commercial disputes.

UNSURPRISINGLY, Hellman characterizes the Palestinian economy as "in shambles." Such shambles should come as no surprise, for as the late Lord Bauer and others have noted, foreign aid does not work. It corrupts and distorts an economy; and the greater the amounts involved, the greater the damage. One telling detail: at times during Yasser Arafat's reign, a third of the Palestinian Authority's budget went for "expenses of the President's office," without further explanation, auditing, or accounting. The World Bank objected, but the Israeli government and the European Union endorsed this corrupt arrangement, so it remained in place.

The Paris conference for the "Palestinian state" raised $7.4 billion in pledges on Dec. 17, 2007. Indeed, the Palestinian Authority offers a textbook example of how to ruin an economy by smothering it under well-intentioned but misguided donations. The $7.4 billion recently pledged to it for the 2008-10 period will further exacerbate the damage.

Paradoxically, this error might help resolve the Arab-Israeli conflict. To see why, consider the two models, hardship v. exhilaration, that explain Palestinian extremism and violence.

The hardship model, subscribed to by all Western states, attributes Palestinian actions to poverty, isolation, Israeli roadblocks, the lack of a state, etc. Mahmoud Abbas, the PA leader, summed up this viewpoint at the Annapolis conference in November: "the absence of hope and overwhelming despair … feed extremism." Eliminate those hardships and Palestinians, supposedly, would turn their attention to such constructive concerns as economic development and democracy. Trouble is, that change never comes.

The exhilaration model turns the Abbas logic on its head: the absence of despair and overwhelming hope, in fact, feed extremism. For Palestinians, hope derives from a perception of Israeli weakness, implying an optimism and excitement that the Jewish state can be eliminated. Conversely, when Palestinians cannot see a way forward against Israel, they devote themselves to the more mundane tasks of earning a living and educating their children. Note that the Palestinian economy peaked in 1992, just as, post-Soviet Union and post-Kuwait war, hopes bottomed out to eliminate Israel.

Exhilaration, not hardship, accounts for bellicose Palestinian behavior. Accordingly, whatever reduces Palestinian confidence is a good thing. A failed economy depresses the Palestinians' mood, not to speak of their military and other capabilities, and so brings resolution closer.

Palestinians must experience the bitter crucible of defeat before they will drop their foul goal of eliminating their Israeli neighbor and begin to build their own economy, polity, society, and culture. No short-cut to this happy outcome exists. Who truly cares for Palestinians must want their despair to come quickly, so that a skilled and dignified people can move beyond its current barbarism and built something decent.

The huge and wasted outpouring of Western financial aid, ironically, brings on that despair in two ways: by encouraging terrorism and by distorting the economy, both of which imply economic decline. Rarely has the law of unintended consequences worked so imaginatively.

Daniel Pipes showed previously how the flood of Western aid bolsters Palestinian extremism and terrorism and fortifies its rejection of Israel. So its no surprise that he thinks bringing about a Palestinian economic collapse might just hasten Middle East peace. The reason for this is the Middle East is counterintuitive. To bring about the results Israel and the West would like to see, the opposite of the normal policies have to be applied to the Palestinian situation. Otherwise the Palestinians have no real incentive to change their behavior to a more peaceful path. As Pipes has written here, the wasted result of the huge amount of Western aid to the Palestinians is the law of unintended - really the law of perverse consequences at work. Its time to try a different approach.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

A BTT for an interesting article. This is, after all, a people beset by the deliberate poisoning of hatred. The aid that supported their government pales in comparison to the aid that keeps the terror war alive there.

The PA's payroll is so bloated that the cost of wages alone exceeds all revenues.

In short, everyone who is anyone works (or worked) for the government. That isn't exactly a recipe for a people to pull itself up by its collective bootstraps. "Palestine" is, to be sure, an interesting social experiment so long as you're not one of the lab rats. It's a little tough to be a real human being trying to live in the laboratory, whether Israeli or otherwise.

The Palestinian Authority is little more than a criminal gang supported through massive fraud, theft, and corruption. Western aid will only serve to prop up the most dysfunctional aspects of this regime.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

Just like welfare in the U.S. It was a subsidy for drug dealerships in the slums, and was responsible for the astronomical murder rate there. The 1994 Congress's whacking of welfare turned our cities around.

If they shipped all the Pallies to, say, Brazil, with no subsidies, the entrepreneurs would take charge and find a way to kill or silence all the Islamists. In five years, they'd be running Brazil.

Another BTT. I couldn’t agree more - isn’t it interesting how consistently this particular pathology works out? You’d figure somebody at some point would get a clue.

This conflict has been going in before I was born. The world would like to see this end, however , for the best outcome,(ours in particular), the Palestinians must be brought to their knees. There greatest obstacle is their so called leaders.

Pipes is wasting his time. Funding Fatah is what the Saudis want. And what the Saudis want they get. Especially when they have agents like the pretender now running the Department of State at their beck and call.

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aid that supported their government pales in comparison to the aid that keeps the terror war alive

Could you point us to more information on that subject?

Is it in part that Fatah gets to spend more of the international "government" aid, and Hamas gets to spend the less limited terror funding?

Would you agree with montag813 in #7, insofar as s/he points toward Saudi interests?

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