Economics of Peace It's in Israeli Interest to Help Build Palestinian Prosperity

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HAS Israel turned the West Bank and Gaza into a captive economic colony? Is an independent Palestinian economy a political threat to Israel?

These questions have been thrust into the Israeli headlines these past few months after Defense Minister Moshe Arens announced he would "help Palestinians find new markets for their agricultural goods" and "make life easier for Palestinian businessmen."

This was followed by a decision to embark on a series of economic reforms, including the creation of Palestinian-owned banks in the territories, the granting of dozens of new business licenses, and tax incentives for factories.

The move was ostensibly motivated by the grave economic situation in the West Bank and Gaza. Up to 40,000 Palestinians have lost their jobs in Israel during the past year to new Soviet immigrants. Economists point to a 40 percent unemployment rate in the occupied territories.

This comes on top of the Gulf war, which was an economic disaster for the Palestinians. Every day that the territories remained under curfew by the Israeli Army cost the Palestinian economy more than $50 million. The shutdown of the Kuwaiti treasury cost the territories nearly $300 million a year in contributions to social services. Nearly $200 million a year in remittances from Palestinians working in the Gulf was lost. The West Bank and Gaza population must now deal with as many as 300,000 Palestinians who have since returned to the territories.

The Palestine Liberation Organization (PLO) lost financial backing from the Gulf states, drying up budgets that once funded newspapers, research centers, labor unions, and medical organizations in the West Bank and Gaza.

It isn't clear whether the change in policy by the Defense Ministry will serve as a turning point in economic development, or if it signifies a recognition by the Israeli government that the residents of the territories must be left alone to build their own economic infrastructure.

Some Palestinian economists believe that it is not a new policy at all but merely a political ploy by the Defense Ministry to keep Palestinians from entering Israel because of the surge in attacks on Israeli citizens. Arens, claims Samir Hulaileh, an economist with the East Jerusalem-based Economic Development Group, is talking about a few ad hoc regulations, not about any comprehensive change in policy.

Simcha Bahiri, an Israeli economist who has carried out industrial surveys in the territories, says the change in thinking, even if real, is simply too little, too late. The Ministry of Defense has denied hundreds of licenses over the years to start new factories.

The fact is, says Dr. Bahiri, billions of dollars in investment capital would be needed today just to find employment opportunities for the 100,000 or so Palestinians currently working in Israel.

One major problem is lack of access to the Israeli market. …