May 22, 2004

The Economic Effect of Terrorism—on the Terrorists Themselves

A friend of mine the other day argued that the Palestinian’s needed to have "a fair offer" made to them. I replied that a great offer had been made to them, but Arafat had rejected it. Via David Horowitz’ FrontPageMag :

The Palestinians Were Given A State And The Land Twice – In 1948 And 1999 – And They Rejected Both Twice.

In 1948, the Arabs rejected the gift of a sovereign Palestinian state in favor of a war to destroy Israel, the only non-Arab presence in the Middle East. The new Israeli state occupied less than 1% of all the land in the Middle East, but that was too much for their Muslim neighbors. (Lebanon was also a nonMuslim state and the only other democracy in the Middle East until the Muslim Arabs and the PLO destroyed it.) In 2000, Bill Clinton and Ehud Barak offered the Palestinians a state and 97% of the land they were demanding (Israel agreed to cede the other 3% from existing Israeli terrority). Arafat rejected the offer and launched the Second Intifada, a terrorist assault on Israeli civilians involving suicide attacks.

The Palestinians had been on the road to prosperity; Arafat’s rejection of the Clinton/Barak offer led to disastrous results for the Palestinians themselves. The following is from an April 22, 2002 LA TIMES commentary by Glenn Yago, director of capital studies for the Milken Institute. Glenn had been on the ground in Israel, working with many others to bring economic prosperity to the Palestinians and to the entire region.

September 2000 was that in-between time after the Camp David process crumbled and before this bloody intifada had erupted. Before Palestinian officials winked, nodded and later gave tacit approval to suicide and murder as a military strategy and before the Israel Defense Forces were obliged to take the law into their own hands.

The economic peace track was still bumping along. Despite political setbacks, the atmosphere was upbeat. J*ordan, the Palestinian Authority and Israel agreed to become a free-trade zone and form a joint tourist marketing program to increase visitors to the region from 3 million to 30 million each year.* Other initiatives were underway to help finance a soon-to-be Palestinian state and encourage cross-border economic development between the Jewish state and its new and old Arab neighbors.

Everyone wanted to help. Palestinians were pitching deals to American and Israeli Jews. The U.S. and Europe were setting up microfinance and capital markets for the Palestinians. The Israeli finance and trade ministries cooperated with U.S. and Palestinian entrepreneurs and industrialists to finance industrial parks for West Bank cities, the same cities that are now burning.

We sat around conference tables in Nablus, Ramallah and Jerusalem. Ideas to lower financing costs to create jobs and build houses for refugees returning to the West Bank and Gaza were flowing with the juices of creative finance: We could use donor money from the U.S. and Israel as a credit enhancement for Palestinian industrial bonds; we would encourage the repatriation of Arab money to buy these new securities and finance jobs to keep Palestinian youth out of mischief. What about creating a water rights market to depoliticize the issue and let the market, not politicians, determine prices for scarce water?

We were giddy with great notions. We could structure a peace index fund with stocks from Tel Aviv, Amman and Nablus bringing new liquidity into capital-starved markets. We could cross-market the fund for baptisms, Ramadan celebrations and bar mitzvahs. Everyone laughed exuberantly—Christian, Muslim and Jew; American, Palestinian and Israeli. It all seemed so possible.

...Each and every proposal we came up with for economic development for and with the Palestinians was blocked until Israel would comply with Arafat’s political wishes. "Yes," we were told by Palestinian Authority officials, "these are great economic projects and programs, but we can’t move forward until the political final status agreement." Full stop. Time to go home.

There was never a peace dividend for the Palestinian people because their leadership blocked every attempt to earn one. Without a constituency for peace, a constituency for terror quickly formed. Private investment disappeared and donor investment shifted from infrastructure and employment projects to maintaining Arafat’s jet and his crony government. With this intifada, unemployment tripled to 30% of the Palestinian work force and the gross domestic product of Gaza and the West Bank fell by 12%. Arafat made Israelis miserable by making his own people destitute.

Stillborn, the Palestinian economy mirrors the failed regimes of the Middle East. By refusing to help his people, Arafat has bred a jobless young labor force that is bereft of education. The Palestinians missed the opportunity to derive benefits from regional trade or foreign capital flows. Instead, they live in a collapsed economy with sinking per capita incomes. And they hold the rest of us hostage to the highest concentration of terrorist organizations in the world.

Despite our best efforts, the Palestinians today have found no way to build a country or serve a people; only a good way to start Arafat’s war.

I find it encouraging that the Palestinians were willing to embrace prosperity, and had they not been so poorly led, they might already have done so. It suggests that if the Palestinians have different leadership, they might yet do so in the future.