It is clear that Israel is paying a heavy price for the 37 years of
occupation of the Palestinian territories, one that is sorely felt
in most households. The Palestinians are paying a much heavier one,
but this does not make the Israeli price any less
significant.
The Israelis are paying the price of arrogance that spread
throughout the ranks of the Israeli leadership and population in
the aftermath of the military victory in 1967. That victory awarded
Israel unchallenged rule over the entire territory of Mandatory
Palestine as well as the bulk of the Palestinian people. Israel
neither found the wisdom nor the bigness of heart needed at the
fateful hour to take advantage of the new circumstances to realize
the political solution that the Zionist leadership itself had
embraced only twenty years earlier: partition of the land between
the two nations. Israel proceeded to sever the West Bank from
Jordan and the Gaza Strip from Egypt, but instead of holding them
as a safe deposit until a fair agreement was reached with the
Palestinians, an agreement based on the recognition of the national
rights of the two communities, Israel opted to attain long-term
control and to annex large chunks of Palestinian territory.
For the first twenty years, the price of occupation was relatively
low. But since the outbreak of the first intifada, in 1987, Israel
has been paying the price of arrogance. The Palestinians cannot
defeat the Israel Defense Forces (IDF) on the battlefield, but
their very readiness to return to the battlefield, again and again,
to express their desire for independent national life has, since
1987, become a constant threat to Israel's political and economic
stability.
PART I: 1967-1987
The Palestinian territories occupied by Israel in 1967 are not rich
in resources. For Israel's leadership and for many rank and file
Israelis, the main attraction of those territories was not economic
but rather political and ideological: the possibility of
establishing a "greater Israel" that would encompass most of the
territories of the biblical Jewish kingdom, marginalizing the local
population.
Until 1987, the economic balance of the occupation was positive, as
the new sovereign, Israel, spent very little on the military and
economic maintenance of control, and made some very significant
economic and financial gains.
Expenditures
A. Military expenditureswere low as Palestinian
resistance, waged mostly from across the border by Palestinian
groups in the early stages of organization, was largely
ineffective. Control of the occupied territories was achieved by
relatively few troops.
B. Government expenditures were also low, as the
Israeli government was determined to maintain control at minimum
cost, meaning, in effect, no investment in the economic development
of the Palestinian territories. The budgets of the Israeli Civil
Authority were largely covered by local taxes. Low government
expenditures were balanced by the inflow of money from Palestinians
working in Israel.
Gains
A. Captive Market for Israeli Products: As the
occupied Palestinian territories were cut off from Jordan and
Egypt, and as the Israeli occupation authorities discouraged any
economic development that might result in competition to Israeli
producers, the Palestinian territories became a captive market for
Israeli products. In the 1980s, the territories accounted for 10 to
12 percent of all Israel's exports - second only to the United
States market.
B. Profits of a Forced Customs Union: Israel controls
all exit and entry points to the Palestinian territories and
collects customs and other taxes, at Israeli rates, on all products
destined for the Palestinian territories or emanating from them,
thus creating, in effect, a forced customs union. Until the signing
of the Oslo agreement, those taxes, which between 1970 and 1987
amounted to about $5 billion, were withheld by the Israeli
treasury. After the establishment of the Palestinian Authority (PA)
in 1994, taxes began to be transferred to it.
C. High Water Consumption: In 1967 Israel gained
control over all the water resources west of the Jordan River.
Mekorot, Israel's government water corporation, became the only
non-municipal water supplier in the Palestinian territories,
providing water for domestic, agricultural and industrial
consumption to the Israeli settlements at Western levels, while
restricting similar uses by Palestinians.
D. Palestinian Workers in Israel: Soon after the
occupation, Israel allowed the entry of Palestinian workers into
the Israeli labor market. By the late 1980s, about 100,000
Palestinians, accounting for more than one-third of all employed
Palestinians, worked in Israel, especially in construction and
agriculture. Their employers certainly profited from them, as their
cost was lower than that of Israeli workers. The workers also
gained, as their Israeli wages, low as they were compared to those
of other Israelis, were higher than the wages of their neighbors
who were employed in the Palestinian territories. The great losers
were Israeli blue-collar workers, whose bargaining position
vis-à-vis Israeli employers was weakened by the entry of
low-cost competitors.
The Israeli treasury also gained from the employment of
Palestinians: Israeli employers of Palestinian workers were
required to deduct full Social Security taxes from their paychecks
(and to add their own contributions); however, Palestinian workers
were eligible for only a few of the Israeli Social Security
programs (the main one being work injury insurance). That part of
the deduction which was meant for the rest of the Social Security
programs, to which Palestinians are not entitled, such as child
allowance or old age insurance, were deposited with the Israeli
treasury. According to one estimate, between 1968 and 1993, the
total deduction amounted to $250 million.
Finally, the Histadrut, Israel Federation of Labor, also benefited
from the employment of Palestinians, as employers were required to
deduct 1 percent from their paychecks for union dues, which were
transferred to the Histadrut - despite the fact that the Histadrut
did not offer any protection to Palestinian workers.
The Single Israeli Investment in the Territories: The
Settlements
The one big investment that Israel made in the Palestinian
territories was the establishment of about 150 Jewish settlements,
with a population of more than 200,000 (not including the
population of Jewish neighborhoods built in areas that Israel
unilaterally annexed to Jerusalem immediately after the 1967
war).
At first, the settlements were placed in strategic locations, such
as the Jordan Valley. Later they were created throughout the
Palestinian territories, with the aim of establishing de facto
Israeli control over the area.
The settlements have no intrinsic economic value, and for all
practical purposes they serve only as bedroom communities. When
calculating the investment in them, we took into account the extra
costs involved in establishing a settlement in the Palestinian
territories, as opposed to housing their residents in existing
localities inside Israel's pre-1967 borders. The extra costs are
due to a need to fortify the settlements - as many of them were
erected adjacent to Palestinian towns and villages that do not
welcome them - and to the various benefits offered by the Israeli
government to would-be settlers, with the aim of increasing the
settler population.
According to an estimate made by Ha'aretz, the total government
over-funding of the settlements between 1967 and 2003 amounted to
45 billion new Israeli shekels (NIS), or about $10 billion. The
Adva Center calculated that between 1990 and 1999, the government
gave the settlements per-capita municipal funding above that given
to localities within the Green Line, amounting to $500 million.
Israeli settlements also enjoyed generous government financing of
the building of public facilities, of special access roads and
roads that by-pass Palestinian villages, and of industrial zones,
as well as generous financing of the operation of schools and
health clinics, and finally, generous tax benefits.
All those government expenditures are soon to be doubled, following
Prime Minister Ariel Sharon's disengagement plan from the Gaza
Strip and the northern sector of the West Bank: each family of
settlers to be re-settled inside Israel will be entitled to between
$350,000 and $750,000. In addition, the Ministry of Defense is
envisioning an expenditure of some $500 million for the relocation
in Israel of IDF facilities presently located in the above areas.
The Road Map envisions the relocation into Israel of many other
Israeli settlements; the expected expenditures will certainly
amount to several billion dollars, making the Israeli settlements
in occupied Palestinian lands the most expensive civil-military
adventure in Israeli history.
PART II: THE ERA OF PALESTINIAN UPRISINGS
The intifada that broke out in 1987 began exacting the price of
arrogance. The sustained resistance of a good part of the local
Palestinian population required the involvement of a large Israeli
military force. In Israel, the conflict exacted many casualties,
slowed economic growth and exacerbated internal political
divisions. Eventually, the first intifada led to the Madrid
Conference (1991) and later to the Oslo agreements, which
established the PA. But that was not the happy end that some may
have expected: the massacre of Palestinians by Baruch Goldstein in
Hebron was followed by an endless string of suicide bombings within
Israel by Islamist Palestinian military groups. At the same time,
the number of Israeli settlers in the occupied territories nearly
doubled. The second intifada broke out in September 2000. While the
first intifada was a popular one, the second one was armed. The
number of casualties on both sides was much greater than ever
before. The economic slowdown worsened. The cost of arrogance
became higher and higher, and it put the entire period of
occupation, beginning in 1967, into a new perspective.
The price can be seen in four main areas: political stability,
military costs, economic losses and social costs.
Political Stability
The position vis-à-vis the Palestinian territories has become
the main dividing line in Israeli politics, pushing aside issues
that account for the distinction between "left" and "right" in
other countries. The issue of Palestine has stalemated Israeli
politics, with neither camp being able to carry out its preferred
solution, thus leading to inaction - or to the formation of
"national unity governments," like the one that implemented the
neo-liberal emergency stabilization program of 1985, and to carry
out the disengagement from Gaza. Three prime ministers failed to
have their budgets approved by the Knesset, due to opposition
within the governing coalition to steps taken on the Palestinian
issue, leading to new elections. And finally, there was the
assassination of Prime Minister Yitzhak Rabin by a right-wing
extremist who opposed the Oslo agreement.
Military Costs
With the outbreak of the first intifada, the costs of military
occupation increased significantly. The IDF assigned two permanent
divisions to the West Bank and the Gaza Strip. Almost every regular
combat unit has served time in the Palestinian territories.
The full budgetary outlays are unknown, as the Israel defense
budget is not made public. However, the yearly budget proposals do
contain figures about special budgetary additions to the defense
budget due to "events in the territories." From 1987 to 2005, those
additions amounted to close to NIS 29 billion, or about $ 6.5. This
figure does not take into account the regular costs incurred for
controlling the occupied territories, such as the maintenance of
the two divisions mentioned earlier.
To the costs incurred by the Ministry of Defense we should add
those incurred by the Ministry of Internal Security. Ever since
Palestinian organizations began attacking Israeli civilians within
Israel's borders, the regular Police and the Border Police, both
under the wings of the Ministry of Internal Security, have acted as
integral components of the Israeli defense apparatus opposing
Palestinian insurgents. From 1994 to 2005, the ministry's budget
doubled.
Defense expenditures now include a special item - the construction
of a security barrier, designed to stop Palestinian infiltrators
and potential suicide bombers, between Israel and the Palestinian
territories. The length of the Green Line separating the two is
about 350 kilometers. Had the fence been built along the Green
Line, its cost would have amounted to NIS 3.5 billion (about $800
million). However the Israeli government decided to include many
Jewish settlements within the barrier, annexing large chunks of
Palestinian territory and lengthening the barrier to almost 600
kilometers, doubling the budgetary cost.
Following a 2003 critical advisory ruling by the International
Court of Justice in The Hague and critical rulings by the Israeli
Supreme Court, the Ministry of Defense once again changed the route
of the fence. This required new expenditures for re-planning and
re-routing. So far the government has allocated NIS 3.5 billion to
the construction of the fence.
Fatalities, Injuries, and Compensation
The most tragic cost of the Israeli occupation and the Palestinian
uprising is the cost in human lives and injuries. From September
31, 1987, to November 15, 2004, Israel suffered 1,355 fatalities
and 6,709 injured persons, both civilians and military personnel.
The figures on the Palestinian side are 4,661 fatalities and 28,217
injuries.
The Israel Institute of Social Security pays indemnities to
civilians killed or injured in hostile acts. In 2003, those
payments amounted to NIS 350 million (about $80 million). The
Israeli Ministry of Defense pays compensation for soldiers injured
or killed, and these payments are much higher than those paid to
civilians. The exact figure is not known, as the budget of the
Ministry of Defense is secret. It is not unreasonable to assume
that the total cost of payments amounts to at least NIS 1 billion
($230 million).
To this we should add the cost of compensation for property damaged
by Palestinian attacks - buses, restaurants and other public
facilities damaged by suicide bombers or by rockets fired from the
Gaza Strip. According to one report, in the second intifada,
indemnities for lost or damaged property in the Gaza area alone
amounted to NIS 0.5 billion ($115).
Economic Losses
The economic losses in the first intifada, are difficult to
isolate, since beginning in 1989 a large wave of Jewish immigrants
from the former Soviet Union and from Ethiopia began arriving in
Israel, affecting all aspects of the economy. The figures show that
the growth in gross domestic product (GDP) decreased from 6.1
percent in 1987 to 3.6 percent in 1988 and to 1.4 percent in 1989,
while growth in per-capita GDP dropped from 4.6 percent in 1987 to
1.9 percent in 1988 and to - 0.3 percent in 1989. Unemployment,
which stood at 6.1 percent in 1987, rose to 8.9 percent in
1989.
The second intifada, which began in September of 2000, had much
more damaging economic effects:
* GDP growth went from a high of 8.0 percent in 2000 (the high-tech
bubble) to negative growth of -0.9 percent in 2001 and - 0.7
percent in 2002;
* GDP per-capita growth went from a high of 5.2 percent in 2000 to
three consecutive years of negative growth: - 3.2 percent in 2001,
- 2.7 percent in 2002, and - 0.5 percent in 2003;
* Estimates of GDP loss in the period 2000-2004 vary from $7
billion-$9 billion (International Monetary Fund) to $12 billion
(Business Data Israel);
* Foreign Direct Investment dropped from a high of $ 5.3 billion in
2000 to $1.7 billion in 2002;
* Tourist entries decreased from a high of 2.7 million in 2000 to a
low of 0.9 million in 2002;
* Unemployment rose from 8.9 percent in 2000 to 10.7 percent in
2003. The economic depression had an adverse effect on government
finances:
* Tax collection dropped from NIS 157 billion in 2000 (31.2 percent
of GDP) to NIS 142 billion in 2003 (28.6 percent of GDP);
* The deficit rose from 2.4 percent of GDP in 1999 (and an
exceptionally low 0.7 percent in 2000) to 5.7 percent in
2003;
* As a percent of GDP, Israeli government debt rose from 88 percent
in 2000 to 104 percent in 2003. In order to deal with the fiscal crisis, the government had
recourse to two strategies: A series of eight consecutive
budget cuts amounting to a total of some NIS 60 billion. Those
budget cuts affected almost every area of government
services.
* Israel asked the U.S. government for loan guarantees of $9
billion. Those guarantees enabled the government to cover its
deficit withou having to increase the burden on the local capital
market and without having to raise taxes locally. In fact, it
allowed the government to do quite the opposite.
Amidst all the budget cuts, the government decided to implement a
tax cut, designed primarily to prevent the alienation of well-to-do
Israelis, especially members of the business class and the hi-tech
scientists. This is the group that prior to the first intifada had
served as the backbone of the IDF officer corps and its most
prestigious fighting units. During the first intifada they
experienced serious moral conflicts, and began looking for
alternatives to service in the occupied territories in particular,
and to military careers in general. That group was among the
strongest supporters of the Oslo agreement. The tax cut was
implemented together with a tax on capital gains. However, the tax
cut was quite large, while the capital gains tax was low.
Thus, while the Treasury's losses from income tax breaks amount to
NIS 12.9 billion (2003-2005), the income from capital gains tax is
estimated at NIS 0.7 billion.
Social Costs
The budget cuts implemented during the second intifada have
adversely affected Israeli society in a number of ways. Their
cumulative effect can probably be compared to the structural
changes introduced into Eastern European countries in the aftermath
of the collapse of the Soviet Union, or to the structural changes
imposed by international financial institutions on countries
following severe financial crises.
The irony is that most of these cuts were not absolutely necessary.
Israel has sufficient financial resources that could have been
tapped to cover the costs of the intifada. In addition, Israel was
able to obtain loan guarantees that were sufficient to cover the
budget deficits. The cuts reflected a neo-liberal agenda favored by
many in the Israeli elite, cutting across both major political
parties as well as a few smaller parties representing the upper
middle class. In this sense, the intifada may be regarded as an
opportunity that presented itself for the implementation of a plan
long in waiting, to downsize the government, cut the budget, lower
taxes, privatize government corporations, lower the cost of labor
and free capital to invest and expand, with the notion that,
eventually, the fruits of economic growth would trickle down to the
population at large.The budget cuts affected mainly the following
areas: A Regression in the Social Services: Some of Israel's
most strategic social services have been severely hit by the budget
cuts.
* Israel's public health system has lost funding. Consequently the
Health Maintenance Organizations (HMOs) are increasingly relying on
out-of-pocket payments, thus creating a dividing line between haves
and have-nots, and corroding support for the public health system
as a whole, especially among the haves.
* The funding of teaching hours in elementary and secondary
education has been severely cut, adversely affecting schools in
Arab and Jewish working- class towns and neighborhoods.
* Higher education has experienced three major budget cuts,
resulting in sharp reductions in funding for research, teaching and
facilities such as libraries
* Research and development funds have been severely cut, affecting
government programs designed to aid nascent hi-tech
industries.
* Housing aid has been severely reduced, making home ownership more
and more difficult.
* Government support of municipal budgets has been severely
curtailed, affecting especially those municipalities that do not
enjoy a strong tax base, such as Arab municipalities and Jewish
development towns. The Dilution of the Social Safety Net: Israel has a
good social safety net, wider than that in the United States, and
resembling safety nets in Western European countries. Its programs
cover old age pensions, survivors' benefits, long-term care,
general disability, income support, child allowances, paid
maternity leave, work injury, accident injury, and unemployment.
The main drawback has been the low level of benefits, compared to
those offered by Western European safety nets.
The budget cuts brought about a severe dilution of the safety net
programs, in two main ways:
* All benefits have been cut, in varying amounts. Income support
was cut by 30 percent on average. Israelis who received a
significant portion of their income from the safety net have
experienced a serious drop in income.
* All benefits that are linked to the average wage have been frozen
until 2006; then they will be linked to the cost of living index
rather than the average wage. Historically, the average wage has
risen more than the Cost of Living Index, thus, most benefits are
sure to erode. According to the National Insurance Institute, basic
old age pensions, set at 16 percent of the average wage, will erode
to 11 percent of the average wage by 2020. A Radical Transformation of the Workplace Pension
Scheme: Israel's workplace pension was run by the
Histadrut, and was financed by designated government bonds at a
reasonable interest rate. The government had been looking for ways
to withdraw its commitment to keep workers' pensions at a steady
level, in favor of directing pension funds instead to the stock
market. For years it claimed that the Histadrut pension funds were
running up a huge actuarial deficit, a fact that was easily
disputed by specialists. In 2003, under the cover of emergency
measures required by the Intifada, the government made its move: it
nationalized some of the Histadrut pension funds, and then sold
them to commercial insurance companies. To make the funds
attractive for buyers, the government doubled handling costs.
Finally, the interest rate offered on bonds bought by pension funds
was lowered. The bottom line is that retired workers now receive
smaller pensions, and future retirees no longer know what kind of
pension awaits them upon retirement.
b>Social Consequences
The most outstanding result of the economic recession caused by the
intifada, combined with the fiscal policy pursued by the Israeli
government, has been the increase in poverty. The proportion of
Israelis under the poverty line - defined as 50 percent of the
median salary - grew from 17.6 percent in 2000 to 19.2 percent in
2003. The depth of poverty increased too: in 2000, Israeli poor had
on average an income that was 25.6 percent below the poverty line;
in 2003 the equivalent figure stood at 30.3 percent. The most
tangible outcome has been the mushrooming of soup kitchens and of
"hand-out" societies, previously unknown in Israel except in the
Orthodox Jewish communities.
Closing Remarks
The second intifada has hurt Israel deeply - the cessation of
economic growth, lowering the standard of living, debilitating its
social services, diluting its safety net and increasing the extent
and depth of poverty.
Israel comes out of the present intifada a more divided and less
cohesive society. Israel has lost the founding vision of a society
striving to bring many disparate groups into the mainstream. There
is less confidence nowadays that the next generation will enjoy the
same level of education as the present one. And many Israelis find
themselves now dependent on the good will of communal
philanthropy.
Even if it leads to a full-fledged Palestinian state, disengagement
will not be the end of the story: while many Israeli politicians
promote the vision of a total separation, emphasized by the
barrier, it is quite clear that as the strongest and the richest of
the Jordan-Palestine-Israel trio, Israel will continue to carry a
substantial part of the responsibility for the economic well-being
of the Palestinians. The arrogance stemming from the 1967 military
victory carries with it a long-term price tag. If Israel desires
long-term peace and stability, it will have to begin doing what it
refrained from doing up to now: helping the Palestinians to create
a viable economy.