The economics of Israeli occupation

AS Palestinian youths battle Israeli soldiers in the streets of this ancient land, a quieter, yet equally significant struggle is evolving. From the factories of Ramallah and Nablus to the markets of Hebron and Jericho, from the camps of Gaza to the farms of the Jordan Valley, Arab residents are fighting not only for their political rights, but for economic independence as well. Their weapons are general strikes, boycotts of Israeli goods, and withheld tax payments. Begun somewhat haphazardly five months ago, the actions are now well coordinated and strictly observed. Israeli officials are responding with like measures: restrictions on the flow of foreign funds into the occupied territories, limits on bank transfers, punishment for Palestinians with outstanding taxes, and the forced opening of shuttered shops.

Such economic actions point up an issue that will become increasingly important as efforts toward a settlement proceed. In 21 years of occupation, the Israeli and Palestinian economies have grown dependent of each other. But Israel has by far benefited the most. The West Bank and Gaza economies have grown subservient to Israel, which has exploited the territories as a cheap labor source and captive market while hindering economic development.

Israel cites security, political, and religious concerns in explaining its desire to hold on to the territories. Equally significant, however, are its economic incentives. Any successful solution to the conflict will have to include Israeli economic concessions to the Palestinians.

The occupation has been a financial windfall to Israel, despite the costs of military and civil administration. More than a third of the West Bank and Gaza labor force - some 108,000 workers - work at menial jobs within Israel, earning about half what Israelis in the same jobs receive. Their low-cost labor is crucial to the construction and textile industries, as well as to agriculture. The government deducts about 30 percent of their wages for taxes and social security, but since they are not Israeli citizens, the Palestinians receive few benefits. Most of the deductions go directly into the national treasury in what Israeli researcher Meron Benveniste calls an ``occupation tax.'' This tax, since 1967, has reached more than $800 million.

Israeli officials contend that some of this money is spent on improving the ``quality of life'' for Palestinians in the occupied territories, and cite construction of schools, roads, hospitals, and sewage systems. But little of the money is spent on the 1.5 million Arabs in the occupied territories. Most of it - more than $2 billion since 1967 - is geared toward Jewish settlements in the West Bank and Gaza, with a population of 65,000. In effect, Palestinians have been subsidizing Israeli settlement on Arab land.

The occupation has also helped Israeli industry. The territories are Israel's second-biggest export market after the United States, accounting for more than $800 million in exports each year and providing a steady source of foreign exchange. Palestinians are a captive market, since they have limited access to imports other than through Israel. Government-subsidized goods flow in from Israel with little regulation, undercutting local production and inhibiting development.

Indeed, competition from the occupied territories has been all but outlawed by Israel. Annual exports from the West Bank and Gaza to Israel total only about $350 million, and most of those are low-cost items subcontracted from Israeli firms. Industrial products that compete with Israeli production are banned, as are all but a few agricultural products. Manufacturing and construction permits, as well as export licenses, are granted or denied arbitrarily. Farmers have seen their land confiscated and their water rights denied.

Since 1967, Israel has confiscated about 52 percent of the land in the West Bank, usually citing security reasons. Now much of that land - more than half of the fertile Jordan Valley - is under Israeli cultivation. More than a third of available West Bank water is diverted to Israeli settlements. Arabs are usually forbidden to drill new wells; many old ones have dried up. The Army has destroyed many Arab water pumps and bulldozed a dozen irrigation canals. Such measures have crippled much of the traditional agricultural economy of the West Bank.

At the same time, Israel has ``made the desert bloom,'' with great efficiency, and deserves due credit. But at what cost to the Arabs who have been farming the same land for generations? Israel has achieved an impressive economic recovery in recent years and brought rampant inflation under control, and now boasts thriving industries. But at what cost to a potentially prosperous people who have been reduced to economic serfdom?

Such costs to the 1.5 million Palestinians in the occupied territories must be acknowledged and rectified. Only then will an equitable and lasting peace be possible.

John P. Tarpey covers the Middle East for Business Week magazine and other publications.

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