When I told a friend that I was writing about infrastructure and
access in the Palestine-Israel economic arena, he thought I was
wasting our readers' time. The first priority, he claimed, is not
infrastructure but finding jobs for Palestinians suffering from
high unemployment and generally miserable living standards due to
the occupation and the intifada. The benefits of infrastructure
projects are long-term, he said, while it is crucial to focus on
the urgent problems.
He has a point. Under normal circumstances, rebuilding the
Palestinian economy should focus on immediate gainful employment,
preferably in export businesses using existing infrastructure both
in Palestine and Israel. Traditional, probably conservative,
economists would also argue that the Palestinian (and
international) private sector should take the initiative. The
willingness of the Turkish private sector (through the Union of
Chambers and Commodity Exchanges of Turkey, TOBB) to bring forward
such a new investment program suggests that the vision may become a
reality. In such a program, the public sector should assist with
grants, tax breaks and similar incentives to the hungry private
sector eager to flood Palestine with new capital investments. Of
course, a certain amount of cynicism is called for. One would hope
that the private sector has the ability to build new plants, but
realistically, this is no more than a dream.
The main reason why infrastructure is a more plausible target is
that it is a public service "good." In the good, or bad, old days -
depending on your politics - of socialism or social democracy, one
might have expected the public sector to create new plants through
government corporations (as Israel did during the 1950s and 1960s).
Some - this writer included - would recommend such a policy even
today, especially for a country like Palestine. But with the
dominant climate of ideological opposition to public "interference"
in business, and considering the general (in)ability of the
Palestinian government, a more realistic approach would exclude
such an alternative.
At this point the Palestinian government has ample funds. Israel is
gradually repaying the Palestinian taxes collected but not
transferred, and the donor countries have resumed and even
increased funding of the Palestine Authority (PA). What ought the
PA to do with its new emerging fiscal surplus? According to some
Palestinian officials, the answer is simple: employ more civil
servants, especially more police from the various "loyal" militias.
This, however, would be a disastrous policy.
So the starting points for the discussion are: a) The private
sector will hesitate to make new investments in the near future
(and, more realistically - until there is a political solution);
and b) the public sector has the funds. The critical question is:
What will the funds be used for, and how can the new spending help
- marginally, as the role of economics is in this area - to bring
Palestine and Israel toward more cooperation and a better
understanding? The answer is infrastructure.
Infrastructure is a wide topic.1 One tends to focus on transport,
utilities (such as water, electricity, etc.) and pollution. But in
the context of Palestine, we should look beyond these to areas such
as education, the legal system, law enforcement, property rights
and a variety of other infrastructures in the basic sense of the
word. I will point out the most vital areas, focusing on projects
that have the greatest impact on society at large and the most
potential for cooperation between Palestine and Israel.
Education and Health
The idea is to invest in education and health facilities -
libraries, laboratories, playgrounds and clinics for preventive
medicine. All such expenditures are aimed at creating a better
welfare state, and will prove that the government is involved in
improving the daily lives of the population as a whole and not just
taking care of its political supporters.
Water and Sewage
Palestine is suffering from insufficient water both for domestic
and agricultural use. Under the Oslo agreements Palestine is not
allowed to drill for fresh water without Israel's consent. Due to
roadblocks and other obstacles to free movement of people and
goods, remote villages suffer from insufficient water supply.
The discussion over water since the 1950s has been about "rights."
Who owns the water? Do Syria and Lebanon hold the rights to the
water now flowing to the Jordan River and the Sea of Galilee? Does
Palestine have rights to the subterranean water aquifers in Area A?
The Oslo Accords allowed Israel to do whatever it pleases but
prevented Palestine from taking any action. If the government of
Japan actually develops its agricultural investment plans in
Jericho, it will need Israeli approval to obtain the water
necessary for growing the produce that is to be exported to the
Gulf States and beyond. In fact, Israel has veto power over every
additional cucumber grown in Palestine.
The discussion over rights has led all the parties involved down
the road to nowhere. It is time to seek a different approach. One
such approach would be to create a monopoly - owned jointly by
Israel and Palestine - that would have the exclusive rights to the
sale of water in the territories of both states. This monopoly
would sell to anyone in both countries unlimited amounts of water
at a price determined according to the costs of "producing" water
(through pumping from the aquifers and desalination). It would be
the sole owner of all means of transport (pipes, etc.) of fresh
water. Thus, water would become a public commodity produced jointly
by Israel and Palestine. No one else would have rights to water in
any part of either state. The danger of over-pumping water from the
aquifers - a reason that Israel has put forth to justify its
objection to granting water rights to Palestine - would be
eliminated. One of the monopoly's tasks would be to take measures
to guarantee the quality of water, now and in the future.
This is not only a sensible way of dealing with the delicate issue
of water and diffusing the argument about rights. It is also a way
to force both countries to cooperate on a vital issue by
de-politicizing it through a political agreement. Creating a joint
monopoly is not simple. In addition to the technical issues of
ownership, capital formation, etc., there is a need for a shift in
the minds of politicians. For so many years the water issue was
clouded by emotional claims to rights (or the lack thereof) that
giving them up might be regarded as a form of treason, especially
Sewage is linked to water. Israel claims that Palestine has not
fulfilled the obligations it took upon itself in Oslo, particularly
in regard to the prevention of water pollution from sewage. This
area also has great potential for cooperation between the two
governments (as is now seen on a minor scale in the area of
Tulkarm-Bak'a al-Gharbiah and other villages in that part of
Israel). The idea is that the purified water from sewage plants
will be the main source of additional water for agriculture. Sewage
from towns and villages will be purified to a standard approved by
the European Union for use in growing edible produce.
One of the means by which Israel exerts pressure on Palestine is by
withholding taxes collected by Israel on Palestinian goods and
services. Most of these - but not all - are imported from third
countries through Israel's sea and airports. In fact, Palestine
does not have a proper tax collection system, and most of the tax
collecting is done by Israel (for a fee). This gives Israel
additional and unnecessary leverage over Palestine.
Access to and from Palestine should be transferred to Palestine. At
every border crossing and every port in both countries, officials
from both states would operate under joint supervision, ensuring
that taxes are collected fully and in accordance with the rules of
the custom union. This way, Israeli officials will collect taxes
due on goods imported into Israel, and Palestinian officials on
goods imported into Palestine.
This would not only loosen the grip that Israel has over the
finances of Palestine, but it would increase cooperation between
tax authorities on both sides and prevent tax evasion, smuggling
and dishonest practices on either side. If and when the airport in
Jerusalem (Qalandia) is reopened, this system could be implemented
in a manner similar to the arrangement in Geneva, where France
shares "half" of the airport. And if Israel agrees to the building
of an industrial zone in Tarkumiya (as proposed by the Turkish
private sector), its "borders" and tax regime could be handled in
the same way.
Getting both sides to agree on joint border management would enable
Palestine and Israel to cooperate on land transportation -
especially trains. On the one hand, Palestine currently has no
incentive to reduce pollution in central Israel caused by trucks
transporting Palestinian goods to Israeli markets. Israel, on the
other hand, has great interest in this area. One way to encourage
Palestinian interest in reducing pollution and its hazards is to
introduce the use of trains. Due to limitations in economic
development and size, it is obvious that Palestine on its own
cannot (and probably will not) invest in a railway system. But it
is of great importance to Israel to help Palestine do just that. If
the Turkish TOBB establishes a commercial and industrial zone in
the areas of Erez (near Gaza), Tarkumiya or Jenin, it is in
Israel's interest to connect these areas to its railway system. And
if the "price" is connecting Jenin, Nablus or Ramallah to the train
system - it is still a worthwhile project, even if it may not be
profitable in terms of classical economic accounting.
A lot has been said about the value of cooperation in energy
projects. Yet, this seems the least likely, as there is no real
need for either side to cooperate in this area. The truth is that
Palestine has no energy sources of its own, and Israel's
electricity needs exceed its capacity. Both countries are short of
energy, and both need to invest heavily in power stations of
various kinds. There is no bonus, at present, for any cooperation
in this area. Since Israel supplies most of the energy in
Palestine, it would be quite willing to reduce its export of energy
in order to better meet the domestic demand. Palestine would be
happy to invest in energy in order to reduce its dependence on
Israel. There is no need to change policies at this stage of energy
The only problem with infrastructure projects as proposed here is
political. Does the PA have the will to use its funds to build
clinics and invest in water purification plants and trains, when
unemployment is skyrocketing? Although long-term economic and
social development depend on such investment, it is doubtful that
the government of President Mahmoud Abbas (Abu Mazen) and Prime
Minister Salam Fayyad has the power to face its public and insist
on investing in a future that may seem distant and unrealistic, in
view of what Israel is doing in the occupied areas.
Conversely, will Israel agree to loosen its grip over Palestine and
allow it to manage its own affairs (such as tax collection)?
Israelis are so used to treating Palestinians as an inferior class
that the idea of their being equal in managing water, for example,
may seem almost heretical. But those who seek a way to put a stop
to the gradual crumbling of the Palestinian economy (and both
governments pay lip service to this wish) - have to make a choice.
Israel, by far the stronger side, is addicted to control, but most
(not all) of the responsibility for breaking the deadlock is
squarely on its shoulders. And, as I have tried to show here, this
could be relatively easy and profitable.
1 A far-reaching and different approach to infrastructure was taken
by the Rand Corporation in its "The Arc" document