It is now officially recognized that the Israeli economy is in the
throes of a deepening recession. According to Israel Bank figures
at the end of June 2001, the "combined index for examining the
situation of the economy" suffered a sharp decline of 0.6 percent
in June, and this is the eighth consecutive month of decline,
amounting to an overall 3.5 percent decline in this period. This
followed ten months (January-October 2000) in which a 6-percent
increase in the index had been achieved. These figures indicate
that, up to October 2000, the economy had enjoyed real growth, to
be followed by months of real recession. What happened in September
2000 to exert such an influence on Israel's economic situation? The
answer is, of course, the Intifada.
According to an estimate made in May 2001, damage to the Israeli
economy caused by the Palestinian Intifada amounts to about 8.5
billion New Israeli Shekels (NIS), or over $2 billion. In reporting
this to the press, Yosi Shostak, director of Israel's Chamber of
Commerce, added that those branches particularly hit were tourism,
construction and real estate, as well as exports to the Palestinian
Authority (PA). Shostak knows what he is talking about, since he
leads an organization representing the whole trade and services
sector.
His estimates indicate that in the eight months since the Intifada
broke out, tourism lost half of its income, about NIS 4 billion.
The losses of the construction industry, which is suffering from a
shortage of trained manpower (Palestinian workers), amount to NIS 3
billion, and NIS 1 billion has been lost in exports to the PA. Is
NIS 1 billion a significant sum? It represents the half-yearly
income of one of the largest food concerns in the country - Osem -
a household name for most Israelis, whose products for home and
foreign markets range from snacks, soups and canned goods to the
vegetable schnitzel, which it makes in the Tiv'ol factory.
The Sewing Shop in Gaza, the Administration in Tel Aviv and the
Owners in New York
The fall of the Nasdaq and the blows from the Intifada caused great
harm to the strategy that Israeli business circles developed in the
last decade in their efforts to integrate into the global economy.
This is a tale that started in the days of the first Intifada, when
Israel gradually lost its control over the occupied territories. It
was then that voices started to be heard in the Industrialists'
Union, which is the strongest organization of Israeli capitalists,
calling for reaching an agreement with the Palestinians and not
even negating the establishment of an independent Palestinian
state, as long as the economic dependence upon Israel would be
preserved.4
The paradigm of the new strategy can be summed up in these words:
"establishing a sewing shop in Gaza (or in Tulkarem or in Amman),
administering it from Tel Aviv, with the owners in New York." Of
course, the product is not intended for the local Arab market or
for Israel, but for the heartland countries of globalization - the
U.S.A., Canada and Western Europe. On the Arab side, there were
those who saw in this strategy "a way of enforcing Israeli economic
control over the Middle East." However, this was not the intention.
Israel cannot control the Middle East economically or even
militarily. Last year's events proved that Israel is incapable of
even maintaining military control over South Lebanon or over the
Palestinian territories.
Israel, on the one hand, was to have integrated into the Middle
East as a base for the activities of multinational companies, and,
on the other, to open progressive industry mainly connected to
three branches that have enormous development potential -
computers, telecommunications and the Internet - all of which are
interdependent, and all of which belong to multinational companies,
mostly American.
At first sight this strategy proved itself. With the agreements
signed with the Palestinians since 1993, gates were opened for
foreign investment, the takeover of local companies by
multinationals and the merging of local and foreign companies.5 The
privatization process, which was one of the economic guidelines
shared by all Israeli governments in the last two decades,
contributed to the strategy.
Since the Oslo Accords, an impressive rise was recorded in the
growth of the national product per capita in Israel. This stood at
$5,500 in Israel in 1980, (as against $770 in Egypt, Jordan and
Syria). In the European Community it was $9,300. In 1998, the
figure "jumped" in Israel to $16,700 per capita and the prognosis
was for $20,000 during the course of the year 2001. This can be
compared to $1,300 in the aforementioned Arab states and $22,000 in
Europe.6 However, one should not draw the conclusion from this
considerable growth in the total production that its fruits were
equally enjoyed by all the residents of Israel. The socioeconomic
gap grew over the last two decades, and particularly in the last
six years. The Israeli economy is notable for the increasing
concentration of capital in a few hands. Some are of the opinion
that this is an economy wholly run by 20 to 50 families and
multinational companies. This concentration of capital finds
expression in the salaries of the heads of the companies. In 1998,
the average yearly salary of the directors of large companies on
the Tel Aviv Stock Exchange amounted to $680,000. The comparative
figure for England was $645,000, in Japan $420,000 and in Germany
almost $400,000.7
Now it is believed that the combination of the Intifada, the fall
of the Nasdaq, and the prolonged recession that began when the
peace process ran out of steam, will lead to only a tiny or even
negative growth in the gross national product (GNP). The Treasury
even calls the present recession "the hardest since 1966" - 1966
was the toughest recession in Israel's economy since the
establishment of the state in 1948. After the first eight months of
the year 2000, which were described as "excellent" by economists,
things got worse and worse, following the outbreak of the Intifada,
the recession and the economic slowdown. From an annual growth rate
of 6 percent, rising to 9 percent in the mid-1990s, the economy now
finds itself after nine months of the Intifada with a growth rate
in the last two years of between 1.7 and 2 percent. The economic
departments of the major banks estimate that this year a growth
rate of only 1 percent is to be expected, if not less. This means a
negative per-capita growth of 1.5 percent.8
The 'Danger' of Palestinian Economic
Independence
When the Intifada broke out at the end of September 2000, voices
calling for "separation" between Israel and the Palestinian
Authority made themselves heard in Israeli government circles. The
term "separation" was never given real substance, and in the
Israeli peace camp there was fear that it be transformed in reality
into apartheid ("separation"' in Afrikaans). These fears were not
only heard in the peace camp. Directors of large economic companies
also expressed fears about being cut off from the Palestinian
economy, and former minister of finance, Avraham Shohat, made every
effort to prevent a Palestinian boycott of Israeli products.
The idea of a separation, which means a Palestinian economy
separate from that of Israel, caused considerable nervousness among
Israeli capitalists who had worked so hard to prevent this in the
framework of peace agreements and economic agreements signed in
recent years with the PLO. Arik Reichman, director of Tnuva, whose
yearly exports to the PA are estimated at NIS 130 million, told
Ma'ariv newspaper that "I can't estimate the damage [from economic
separation], but it is very great."9 This was not only a question
of sales. He added: "We are engaged in serious cooperative projects
with the PA [like] plans to establish a joint milking station and
joint distribution channels, all of which can be drastically
affected." But the deepest fear of the Tnuva man was that of losing
Israel's second-largest export market10 and the base from which one
could reach the Arab world.
Dead End
The last Labor government tried to progress along the road that its
leader, Ehud Barak, saw as "Rabin's way." The Palestinians have an
entirely different version of the goal to which Rabin's way would
lead: an independent Palestinian state. In this sense, there is now
only "Arafat's way." The question is what is "Sharon's way"? In
other words, apart from his use of force, so well known to so many
Palestinians in the occupied territories, what is Sharon's
longer-term strategy?
Until a few months ago, there was much talk of "separation." Now,
many people in the Israeli government think that Israel's colonial
war in the West Bank and the Gaza Strip will inevitably lead to the
dissolution of the Palestinian Authority. Is this a reasonable
political alternative? The answer is negative: Sharon's policies
merely deepen the hostility of the Palestinians toward Israel and
encourage their struggle for independence. It nevertheless seems
that a not-inconsiderable part of Israeli public opinion supports
Sharon's policies.
Immediately after his election, and before taking office, Sharon
held a large number of meetings with industrialists, capitalists
and bankers - in effect, with all the important figures in the 50
or so families who run the economy. It was there that he was to
receive strong backing, along with a request to establish a
government of national unity. This circle of 50 families, which so
strongly supported a "new economy" and "a new Middle East,"
realized that they aren't so different from those of the "old
economy" and that a "new Middle East" cannot be established without
solving several basic problems of the "old Middle East," with the
central problem being that of Palestinian nationalism.
However, since taking office, Sharon's policies have only served to
deepen Israel's economic crisis, which is now beginning to be seen
in the economic reports of banks and major economic companies.
These show clear signs either of losses rather than profit, or of a
significant decline in profits. Nehamia Strassler, the economic
correspondent of the daily Ha'aretz, who reflects the thinking of
Israel's economic elite, notes that "the problem is a long-term
matter. If the violence continues for a prolonged period, and
Israel once again will be viewed from outside as in a state of war,
or as a pariah state which shells refugee camps, then the economic
ramifications will be harsh. The risk involved [in investing] will
rise, investments themselves will decline, future growth will be
damaged and the present depression will deepen."11
However, the problem is not only future growth. The government must
face up to the option of "guns or butter" and it unequivocally
prefers guns. During the year 2001 (which isn't over yet), the
government increased the budget for the military and the police by
about NIS 2 billion. There is now talk of the need to mobilize a
further NIS 3 billion for next year's security budget. Mobilizing
actually means diverting budgets from non-military ones like
welfare, health and education. It is estimated that, since the
Intifada until today, 100,000 people will have been put out of
work. All this is part of the cost of the Intifada - in human
lives, in the economy, in unemployment, and in giving priority to
military at the expense of social budgets. The Israeli economy,
like the whole of Israeli society, is increasingly in need of a
peaceful solution to its conflict with the Palestinians.
1. I am not dealing in this article with the recent economic
situation in the Palestinian Authority areas. Many indicators show
the gravity of the situation there, including growing unemployment
and poverty, preventing investment and "strangling" the economy
through closures.
2. Since the outbreak of the Intifada, 25 of the largest companies
on the Tel Aviv Stock Exchange suffered cumulative losses of NIS
700 million in the first quarter of the year as against profits of
NIS 3 billion in the parallel period last year (Yediot Aharonot,
June 3, 2001).
3. Ha'aretz, May 27, 2001.
4. See my article "Globalization and Economy in the Middle East: A
Peace of Markets, or a Peace of Flags?" Palestine-Israel Journal,
Vol. VII, nos. 1 & 2, 2000.
5. Ha'aretz (February 22, 2000) asks whether Israelis buying the
products of Osem and Strauss in their supermarkets are aware that
over half the shares of the large Israeli companies are today owned
by foreign investors.
6. Shlomo Sversky and Ettie Konor, The Social Picture (Tel Aviv:
Adva Center, 2000).
7. Ibid.
8. Yediot Aharonot, May 30, 2001.
9. Ma'ariv Business Supplement, December 8, 2000.
10. Le Monde, May 10, 2001.
11. Ha'aretz, May 24, 2001.
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