foreign aid became the chief source of incremental income. Typically, foreign aid flows to governments and tends to increase the power of the recipient government in relation to the private sector. Thus foreign aid fosters socialism, including, should the regime be so inclined, national socialism, and invariably, crony socialism.
As foreign aid eclipses entrepreneurial achievement as the dominant source of newfound income in a society, the influence of politics looms ever larger in the national life. A theater of grievance replaces a culture of economic advance. Displacing the peaceful outreach of commerce are seething concerns about domestic favoritism, international conspiracies, tribal loyalties, and personal betrayals. The more critical foreign aid becomes to a country’s economy, the more it tends to foster violence between ethnic groups and political factions. This dynamic governed much of the history of the Palestinians.
The first era of Palestinian economic history spanned the period between 1948 and 1967. During this period the Jordanians controlled the West Bank and the Egyptians controlled Gaza. In 1948, a total of nearly 600,000 Arabs lived in these Palestinian territories (not including those who remained in Israel proper). The most significant of these territories, the West Bank of the Jordan River (also known by its Biblical designations of Judea and Samaria), covers some 2,000 square miles of land. More than 500,000 Arabs lived in the West Bank in 1948. Gaza, the other territory, is a strip of land on the Mediterranean contiguous with Egypt, which is approximately 25 miles (40 kilometers) long and six miles (10 kilometers) wide that was home to almost 80,000 Arabs in 1948. As Hillel Halkin observed, “Jordan, Israel’s main military adversary in 1948, saw to it that the West Bank it annexed had not a Jew in it.” Similarly, Egypt would not permit Jews to live in Gaza.
In this first 2 0 -year phase, under Jordanian control, the Arab population of the West Bank increased by 2 0 percent, to some 600,000 by 1967, and the economy showed modest growth, with per capita income around $800. The population of Gaza rose fivefold to some 400,000, while the economy in Gaza stagnated under unofficial Egyptian rule and experienced an influx of Palestinian war refugees with their incumbent baggage of UN programs.
Many leading Palestinian entrepreneurs fled to Amman, Damascus, or Beirut, where they set up formidable machine shops and even banking and insurance firms. There are wealthy ex-Palestinians scattered throughout the Middle East. If economies are driven by the efforts of a relatively few exceptional entrepreneurs, most of the Palestinian “few” left their fellow Palestinians behind. Growth in the West Bank and Gaza was sluggish at best and no one in authority ever proposed creation of an Arab Palestinian state beyond the one already established in Jordan.
The second era began after the 1967 war, when Israel routed four hostile invading armies in six days. During this second period, Israel took over the West Bank and Gaza and administered its economy.
During the following 20 years under Israeli management until the First Intifada of 1987, the West Bank and Gaza comprised one of the most dynamic economies on the planet, with a decade of growth at a rate of roughly 2 5 percent per year from 1969 to 1979. Annual investment in constant dollars soared from under $10 million in 1969 to some $600 million in 1991, rising from 10 percent of GDP to around 3 0 percent in 1987 (maintained through 1991). The Arab population rose from roughly one million in 1967 to almost three million in some 261 new towns. Despite the nearly triple growth in population, per capita income also tripled in the West Bank; and in Gaza, it rose from $80 to $1,706 from 1967 to 1987. Meanwhile, the number of Jewish settlers in the West Bank and Gaza increased only to 250,000.
During this period when the West Bank and Gaza were administered by Israel, the territories received little foreign aid, the economy boomed, and the Palestinians dramatically augmented their numbers, their business activity and their standard of living.
Efraim Karsh, who has been described by the scholar Daniel Pipes as the preeminent historian of the modern Middle East writing today, provides the details:
At the inception of the occupation [in 1967], conditions in the territories were quite dire. Life expectancy was low; malnutrition, infectious diseases, and child mortality were rife; and the level of education was very poor. Prior to the 1967 war, fewer than 60 percent of all male adults had been employed, with unemployment among refugees running as high as 83 percent. Within a brief period after the war, Israeli occupation had led to dramatic improvements… [T]he number of Palestinians working in Israel rose from zero in 1967… to 109 thousand by 1986, accounting for 35 percent of the employed population of the West Bank and 45 percent in Gaza. Close to two thousand industrial plants, employing almost half of the work force, were established in the territories under Israeli rule.
During the 1970s, the West Bank and Gaza constituted the fourth fastest-growing economy in the world… with per capita GDP expanding tenfold between 1968 and 1991… Life expectancy rose from 48 years in 1967 to 72 in 2000… By 1986, 92.8 percent of the population… had electricity around the clock, as compared to 20.5 percent in 1967… [Similar advances occurred in hygiene, healthcare, child mortality, immunizations, and communications, which all rose to levels equal or exceeding other Middle Eastern countries]. The number of schoolchildren… grew by 102 percent… Even more dramatic was the progress in higher education. [From zero in 1967] by the early 1990s, there were seven [universities] boasting some 16,500 students.
This second era of Palestinian progress and prosperity came a cropper in 1987, when Palestinian Arab terrorists responded to the good fortune of their people the same way as they did in the 1930s. In a process dubbed by Western apologists as an “Arab Awakening,” Arab leaders distracted the “street” with anti-Semitic chimeras. Fearing irrelevancy as hundreds of thousands of Palestinians collaborated with Jews, PLO agitators fomented the First Intifada, launching thousands of attacks on Israeli targets and putting economic growth into reverse.
Once again, the power of anti-Semitic politics, with international diplomatic gulls and gobblers in tow, overcame the upsurge of economic advance, delivering the Palestinian Arabs once again into the clutches of a rapacious gang of neo-Nazis. Thus began the woeful third era.
As Oussama Kanaan wrote in 1998 in the International Monetary Fund Report,
The IMF report presents a raft of data from the dismal science to document the collapse. Although military measures to suppress the Intifada did restrict economic activity, the real cause is the Bauer syndrome.
Previously, under Israeli administration, the Palestinians in the West Bank and Gaza were oriented toward the possibilities of enterprise and economic growth complementing Israel’s own economy. For a decade, the territories represented a kind of unregulated “Wild East” for Israeli entrepreneurs and actually grew faster than Israel did. With Yasser Arafat banished, the Palestinians in the West Bank and Gaza enjoyed rapid economic growth in a climate of minimal violence.
Beginning in 1993, however, the United States and the United Nations essentially gave away the store to Arafat. Rehabilitated by the 1993 Oslo Accords, Arafat returned from his exile in Tunisia in July of 1994, where he had fled from Lebanon in 1982. All the power — and money — flowed to the PLO’s leader and from there heavily to his personal, numbered Swiss bank account. With foreign aid pouring in by the billions to the terrorists, the result was the emergence of Hamas, battling Arafat’s Fatah organization for power and perks and mobilizing the forces in Palestine out of favor with the PLO.
The increase in foreign aid after 1993 was associated with a 40 percent decline in per capita income in the first half of this decade together with mounting anti-Israel terrorism and anti-Semitic animus. As the PLO focused on politics and sedition, the Palestinian economy shrank, and dependence on foreign aid increased along with incessant complaints about the inadequacy of that aid. In this environment, Palestinian entrepreneurship collapsed amid much talk by Arafat and his minions of the “humiliation” of working for Jews.
From its outset early in the twentieth century, Palestinian nationalism itself was an artificial construct, characterized by hostility toward Jews, as well as toward capitalism. Palestinian political leaders were indifferent to enterprise and hostile to repeated international schemes for joint Arab — Israeli development of the Jordan River basin. Palestinian political behavior was so obnoxious that their leaders were rejected by every Arab state in which
