Palestine, Israel and the Middle East: The Economics of Peace

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Palestine, Israel and the Middle East: The Economics of Peace

By Janet McMahon

For most of the past half-century, particularly in the years since Israel's 1967 capture of the West Bank and Gaza Strip, the Israeli-Palestinian conflict has been considered primarily a political dispute over territory. With the signing of the Oslo accords, however, and the excruciating negotiations over their implementation, the economic aspect of peace is gaining increasing attention, the most recent manifestation being the October regional economic summit in Amman.

In preparation for that summit, the Washington, DC-based Center for Policy Analysis on Palestine held a half-day symposium on "Regional Economic Development in the Middle East: Opportunities and Risks." Some 150 people representing the governmental, private and non-profit sectors heard a range of perspectives and proposals from a similarly diverse panel.

Moderator George Abed, assistant director of the International Monetary Fund's fiscal affairs department, noted that peace has replaced oil as the "engine of growth" in the Middle East. He posed the question of whether peace could succeed where oil wealth had failed, in changing the region's economic culture and inducing economic cooperation.

The first panelist to address his question was Dr. John Page, chief economist of the Middle East and North Africa region for the World Bank and author of the Bank's widely read study The East Asian Miracle: Economic Growth and Public Policy. It was precisely this region to which Dr. Page, using charts and graphs, compared the Arab countries of North Africa and the Middle East.

In the 1960s, Page said, the Middle East had a higher per capita income than the present-day economic "tigers" of East Asia. Yet now the latter's per capita income of $8,000 is more than double that of the Middle East nations, which average $3,400 yearly per capita. Page attributed the Arab world's sharp decline in economic prosperity to its "public sector-oriented pattern of development." The Middle East, he maintained, "has never had a home-grown process of economic growth," relying instead on externally generated wealth through the sale of its oil and gas resources. By contrast, the rapidly growing East Asian economies are characterized by a high rate of savings and domestic investment.

The World Bank official described the Middle East's current economic situation as a "productivity crisis, not a problem of money." He urged the region's governments to increase the rate of private investment, give priority to investment in human capital (e.g., education and training), and to "get into the world economy," since "regional integration follows integration in the world economy, not the other way around." With regard to a Middle East development bank, Dr. Page supported it as a "repository of thinking," ideas and policy--what he termed the "software" of economic development--rather than as a source of financing.

Dr. Samir Abdullah, director of the Department of Economic Policy and Project Selection at PECDAR (Palestinian Economic Council for Development and Reconstruction), discussed the region's economics from the Palestinian perspective. Calling Palestine's economy the region's smallest and most disadvantaged, he enumerated its three positive aspects: a dynamic private sector--"the hope for the Palestinian economy in the future"--that had survived in "a constrained, hostile, oppressive environment"; a strategic location; and a "good base of human resources," both within Palestine and throughout the diaspora.

The question of whether Palestinians are able to make effective use of these comparative advantages cannot be separated from the question of Palestinian identity itself, according to Dr. Abdullah. The Oslo accords gave Palestinians control of some of their resources ("just enough to make a little change") and freedom of access to neighboring markets. Both these gains will have to be expanded upon in order to become meaningful. …