Magazine article Washington Report on Middle East Affairs

Israel's Fruits of War Now Seen Spoiling on the Vine

Magazine article Washington Report on Middle East Affairs

Israel's Fruits of War Now Seen Spoiling on the Vine

Article excerpt

Thomas R. Stauffer is a Washington, DC-based engineer and economist who has taught the economics of energy and the Middle East at Harvard University and Georgetown University's School of Foreign Service.

Israel is now victim of a war of attrition--one of its own making. The intifada has become an expensive affair, sapping Israel's resources at a time when its economy already has been hit by stagnation in the U.S. and Europe. Hanging on to the territories which Israel conquered so easily in 1967 is now costly and painful--unemployment is up, investment is down, tourism has all but evaporated, and the banking system, fragile at best, is increasingly at risk. Quasi-permanent mobilization saps both morale and industrial productivity. Defending the settlers' growing demands and their ever-expanding boundaries now costs some 10 percent of the county's GNP.

The conquests of 1967 had been very lucrative for Israel. Those profits, however--then an integral part of the planning for the war--have been eroded away and are long gone. In '67, though, they were very real. Then Israel had seized a profitable captive market in Gaza and the West Bank. Palestinians benefited from remittances from their own Diaspora, and after 1967 that hard currency had to be spent on high-priced Israeli goods. It preempted even the Holy Land tourist trade, a multi-billion dollar business. Its military victory enabled Israel to avail itself of a growing source of cheap labor for its construction industry, farms, and textile sweatshops. In 1967 Israel seized from Egypt oil fields in the Sinai which ultimately were worth some $1 billion a year. And, lastly, its capture of the West Bank and the Golan Heights secured an additional 50 percent of Israel's water supply.

Today, because of the current intifada, Israel's bottom line has reversed, and the costs of sustaining the occupation exceed the benefits. The oil fields reverted to Egypt in 1975, under pressure from President Gerald Ford. The greatest reversals, however, have taken place in the last 24 months. The contrast between the 1970s and 2002 is stark. The economic toll imposed by the Palestinian resistance has been notably apparent in three sectors: 1) tourism, 2) labor supply costs, and 3) the captive Palestinian market.

Tourism shows the most obvious scars from the collateral damage wrought by the intifada. In 2000--before the resistance erupted--it grossed over $4 billion in hard currency, a tidy sum to the small Israeli economy, because most of the money was spent on Israeli goods, rather than leaking abroad for imported soap or linens as is the case in "Club Med"-style tourism. Tourist-nights have fallen by 75 percent or more, and dollar revenues are down to possibly less than $1 billion per year, from a robust annual figure of $4 billion. These are "high-impact" dollars, so that their loss is acute.

Local tourism is holding up, but it brings in shekels, not dollars. It is the dollar trade which has been hit, and the industry is clamoring for help from a government already wracked by such demands from other ailing sectors and by a growing deficit. Restaurateurs and guides have added to the clamor. Local banks nervously point to possible loan defaults on NIS 4 to 6 billion in reportedly non-performing loans to the hoteliers, which would further weaken the banks' anemic balance sheets. Signs of resuscitation are elusive; many Jewish organizations have canceled their own tours, citing concerns for potential liability.

The intifada's second major impact is the disruption in labor patterns--truly ironic in the sense that Israel's crackdown has produced a double whammy: it has lost the lucrative Palestinian market and, at the same time, the docile supply of cheap Palestinian labor. Just as the cheap Palestinian workers who built Israeli buildings and who worked the lands of moshavim and kibbutzim are gone, so is the Palestinian purchasing power which made the West Bank and Gaza so profitable to Israeli businessmen. …

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