Balancing the Markets: Economic Changes as a Path to Peace

On the stage of international politics, economic cooperation and peace are widely seen as necessarily concomitant goals. The International Monetary Fund argues that, “Peace is a necessary precondition for trade, sustained economic growth, and prosperity. In turn, economic stability, and a rising prosperity that is broadly shared-- both within and among countries-- can foster peace.”1 This concept has often been applied to the Israel-Palestine conflict, in particular with the intention of fostering a strong economic symbiosis as a means of developing a lasting peace. Yet an evaluation of the recent trajectory of Israeli-Palestinian economic cooperation reveals a fundamental structural imbalance which, unless rectified, will inevitably preclude the viability of an economic component to the peace process.

Economic cooperation’s potential to advance peace is predicated on a mutual interdependence, a genuine symbiosis in which each party benefits roughly equally from the arrangement. A strong example of this is cooperation over natural resources. It was the sharing of coal and steel by post-War European powers which not only helped to mitigate the competition which had led to the World Wars, but ultimately resulted in the formation of the modern European Union. Likewise, water sharing between Jordan, Israel, and the Palestinian Authority has been a critical source of cooperation between the three governments. In such arrangements, close cooperation and a balance of power are not only essential to the health of the arrangement but also to the health of the participants themselves. While Israel, Jordan, and the PA can disagree over the precise dynamic of the water sharing agreement, they simply cannot afford not to cooperate over such a vital resource.

A Fundamental Imbalance

The problem, then, with the dream of an economics-bolstered resolution of the Israel-Palestine conflict is that the Israeli-Palestinian economic relationship is, at its most basic level, unbalanced. While the Israeli economy more than holds its own on the international stage, the Palestinian economy continues to struggle mightily.2 Though this dynamic results from a few factors (namely the Occupation, regional instability, and mismanagement by Palestinian governing bodies), the end result is that the Palestinian economy is heavily dependent on the economy of Israel. As of 2015, “Israeli products accounted for more than 70 percent of Palestinian imports and [Israel] absorbed more than 85 percent of Palestinian exports.”3 The collapse of the Paris Protocol further undermines such cooperation. During the Second Intifada, Israel cut off opportunities for many Palestinians working in Israel proper, turning instead to imported foreign workers, while Palestinians remained (and many to this day remain) unemployed. Thus, while Israel has been able to rely on external solutions to its economic problems, the Palestinian economy continues in a state of dependency upon Israeli markets.

The effect of this dependency is threefold. First, it builds resentment among Palestinians. Israel experiences high-profile economic success while the Palestinian economy suffers, creating a readily-apparent imbalance that smacks of unfairness to those whom it negatively affects. Second, by failing to encourage equitable face-to-face interaction between civilians on both sides, it amplifies the sense of otherness felt by both sides rather than humanizing and uniting. Lastly, this dependency feeds itself, widening the power gap between Israelis and Palestinians and undermining the push for mutual reliance which, as seen in both the case of the EU and the water rights agreement, is so essential to the success of the economic element of the path to peace.

The unfortunate reality is that most of these problems cannot be remedied without a peace process. Contiguity of Palestinian territorial control, currently impossible under the Occupation, is vital to the growth of local Palestinian business and to attracting outside investors. Similarly, political instability discourages investment and cuts significantly into foreign aid budgets. As a result, the public sector is the single largest employer in the Palestinian economy, hardly a recipe for sustained economic health. As long, therefore, as the Palestinian economic quagmire continues, Israel will retain its position as the unquestionably stronger power in the relationship, making economic reconciliation and cooperation between the two parties entirely unfeasible.

Going Micro

On a local level, however, outside the realm of governmental action, major steps can be taken to strengthen the Palestinian economy in a way that could genuinely encourage the broader push for peace. The most important of these is a grassroots shift in economic behavior on both sides: Israeli civilians must be encouraged to patronize Palestinian businesses, and Palestinian civilians must be given greater access to Israeli commercial spaces. Rather than a continued emphasis on governmental and corporate policy, such a shift must return the focus to the day-to-day participants of both the Israeli-Palestinian economy and the Israeli-Palestinian conflict.

The immediate effect of this bottom-up change would be to bolster the Palestinian economy and set it on more equal footing with its Israeli counterpart. The current Palestinian economy still suffers in many ways from the impact of the Intifadas and the loss therein of a large number of Israeli customers. Israelis returning to these markets would revitalize Palestinian markets in a genuine, non-dependent way, allowing for a cooperation borne out of Palestinian self-reliance, rather than dependency upon Israel. Similarly, by breaking down the de facto segregation at many Israeli commercial centers, such as exists at the Malha Mall in West Jerusalem, Palestinian consumers are given a greater sense of both freedom and security, allowing for Palestinian economic participation based not on “economic dependency and political oppression”, but on a “growing economic interdependence between Israelis and Palestinians.”4

Beyond the simple economic benefits that a grassroots economic change would have, it would also offer hope for a more holistic, qualitative improvement in Israeli-Palestinian civilian relations. Specifically in the context of Israel and Palestine, much research exists demonstrating that such informal interactions between Israeli and Palestinian civilians can “diminish political division and societal alienation”, alleviating bias and mistrust. Moreover, economic interdependencies between civilians from the two communities both improves perceptions of the “other side” and leads participants to develop a more optimistic view of the future and a greater willingness to work toward a resolution.5 These are not the abstract hopes of academics, but the practical, daily lives of businesspeople on both sides.

There is clearly truth to the notion that economic cooperation can contribute to the construction of a just peace between Israelis and Palestinians; far from it being a distant fantasy, real research supports the idea that commercial interaction can foster not only coexistence but opportunities for mutual growth. Such relationships build trust, fight segregation, and help to minimize the potential for conflict. As political negotiations continue to stall, the role of economic re-equilibration is worth considering. Yet it cannot be emphasized enough that such economic cooperation must come from the ground up. It must be a civilian movement, one based on face-to-face interaction, and on true interdependence as a means of breaking down the currently imbalanced economic relationship between Israelis and Palestinians. Moreover, it must be recognized that economic reconciliation is not a substitute for political peace; it is merely a means of setting the stage. If economic cooperation is to play a role in building peace between the people of Israel and Palestine, then it must be predicated upon the same goals as the larger peace process: grassroots change and genuine equality.

1Strauss-Kahn, D. (2009, October 23). Economic Stability, Economic Cooperation, and Peace—the Role of the IMF. Speech, Oslo.
2Chafets, Z. (2018, August 16). Israel's Economy Has Earned a Few Tiger Stripes. Bloomberg News. Retrieved from https://www.bloomberg.com/opinion/articles/2018-08-16/s-p-global-s-new-israel-rating-is-well-deserved
3Report on UNCTAD assistance to the Palestinian people: Developments in the economy of the Occupied Palestinian Territory (Rep.). (2016). United Nations Conference on Trade and Development.
4Shtern, M. (2016). Urban neoliberalism vs. ethno-national division: The case of West Jerusalem's shopping malls. Cities, 52, 132-139.
5Dobers, G., Ihle, R., Kachel, Y., & Liebe, U. (2018). Economic integration in the Middle East: Israeli‒Palestinian fresh food trade. Israel Affairs, 24(3), 421-441.