When I told a friend that I was writing about infrastructure and access in the Palestine-Israel economic arena, he thought I was wasting our readers' time. The first priority, he claimed, is not infrastructure but finding jobs for Palestinians suffering from high unemployment and generally miserable living standards due to the occupation and the intifada. The benefits of infrastructure projects are long-term, he said, while it is crucial to focus on the urgent problems.
He has a point. Under normal circumstances, rebuilding the Palestinian economy should focus on immediate gainful employment, preferably in export businesses using existing infrastructure both in Palestine and Israel. Traditional, probably conservative, economists would also argue that the Palestinian (and international) private sector should take the initiative. The willingness of the Turkish private sector (through the Union of Chambers and Commodity Exchanges of Turkey, TOBB) to bring forward such a new investment program suggests that the vision may become a reality. In such a program, the public sector should assist with grants, tax breaks and similar incentives to the hungry private sector eager to flood Palestine with new capital investments. Of course, a certain amount of cynicism is called for. One would hope that the private sector has the ability to build new plants, but realistically, this is no more than a dream.
The main reason why infrastructure is a more plausible target is that it is a public service "good." In the good, or bad, old days - depending on your politics - of socialism or social democracy, one might have expected the public sector to create new plants through government corporations (as Israel did during the 1950s and 1960s). Some - this writer included - would recommend such a policy even today, especially for a country like Palestine. But with the dominant climate of ideological opposition to public "interference" in business, and considering the general (in)ability of the Palestinian government, a more realistic approach would exclude such an alternative.
At this point the Palestinian government has ample funds. Israel is gradually repaying the Palestinian taxes collected but not transferred, and the donor countries have resumed and even increased funding of the Palestine Authority (PA). What ought the PA to do with its new emerging fiscal surplus? According to some Palestinian officials, the answer is simple: employ more civil servants, especially more police from the various "loyal" militias. This, however, would be a disastrous policy.
So the starting points for the discussion are: a) The private sector will hesitate to make new investments in the near future (and, more realistically - until there is a political solution); and b) the public sector has the funds. The critical question is: What will the funds be used for, and how can the new spending help - marginally, as the role of economics is in this area - to bring Palestine and Israel toward more cooperation and a better understanding? The answer is infrastructure.
Infrastructure is a wide topic.1 One tends to focus on transport, utilities (such as water, electricity, etc.) and pollution. But in the context of Palestine, we should look beyond these to areas such as education, the legal system, law enforcement, property rights and a variety of other infrastructures in the basic sense of the word. I will point out the most vital areas, focusing on projects that have the greatest impact on society at large and the most potential for cooperation between Palestine and Israel.

Education and Health

The idea is to invest in education and health facilities - libraries, laboratories, playgrounds and clinics for preventive medicine. All such expenditures are aimed at creating a better welfare state, and will prove that the government is involved in improving the daily lives of the population as a whole and not just taking care of its political supporters.

Water and Sewage

Palestine is suffering from insufficient water both for domestic and agricultural use. Under the Oslo agreements Palestine is not allowed to drill for fresh water without Israel's consent. Due to roadblocks and other obstacles to free movement of people and goods, remote villages suffer from insufficient water supply.
The discussion over water since the 1950s has been about "rights." Who owns the water? Do Syria and Lebanon hold the rights to the water now flowing to the Jordan River and the Sea of Galilee? Does Palestine have rights to the subterranean water aquifers in Area A? The Oslo Accords allowed Israel to do whatever it pleases but prevented Palestine from taking any action. If the government of Japan actually develops its agricultural investment plans in Jericho, it will need Israeli approval to obtain the water necessary for growing the produce that is to be exported to the Gulf States and beyond. In fact, Israel has veto power over every additional cucumber grown in Palestine.
The discussion over rights has led all the parties involved down the road to nowhere. It is time to seek a different approach. One such approach would be to create a monopoly - owned jointly by Israel and Palestine - that would have the exclusive rights to the sale of water in the territories of both states. This monopoly would sell to anyone in both countries unlimited amounts of water at a price determined according to the costs of "producing" water (through pumping from the aquifers and desalination). It would be the sole owner of all means of transport (pipes, etc.) of fresh water. Thus, water would become a public commodity produced jointly by Israel and Palestine. No one else would have rights to water in any part of either state. The danger of over-pumping water from the aquifers - a reason that Israel has put forth to justify its objection to granting water rights to Palestine - would be eliminated. One of the monopoly's tasks would be to take measures to guarantee the quality of water, now and in the future.
This is not only a sensible way of dealing with the delicate issue of water and diffusing the argument about rights. It is also a way to force both countries to cooperate on a vital issue by de-politicizing it through a political agreement. Creating a joint monopoly is not simple. In addition to the technical issues of ownership, capital formation, etc., there is a need for a shift in the minds of politicians. For so many years the water issue was clouded by emotional claims to rights (or the lack thereof) that giving them up might be regarded as a form of treason, especially in Israel.
Sewage is linked to water. Israel claims that Palestine has not fulfilled the obligations it took upon itself in Oslo, particularly in regard to the prevention of water pollution from sewage. This area also has great potential for cooperation between the two governments (as is now seen on a minor scale in the area of Tulkarm-Bak'a al-Gharbiah and other villages in that part of Israel). The idea is that the purified water from sewage plants will be the main source of additional water for agriculture. Sewage from towns and villages will be purified to a standard approved by the European Union for use in growing edible produce.

Border Passages

One of the means by which Israel exerts pressure on Palestine is by withholding taxes collected by Israel on Palestinian goods and services. Most of these - but not all - are imported from third countries through Israel's sea and airports. In fact, Palestine does not have a proper tax collection system, and most of the tax collecting is done by Israel (for a fee). This gives Israel additional and unnecessary leverage over Palestine.
Access to and from Palestine should be transferred to Palestine. At every border crossing and every port in both countries, officials from both states would operate under joint supervision, ensuring that taxes are collected fully and in accordance with the rules of the custom union. This way, Israeli officials will collect taxes due on goods imported into Israel, and Palestinian officials on goods imported into Palestine.
This would not only loosen the grip that Israel has over the finances of Palestine, but it would increase cooperation between tax authorities on both sides and prevent tax evasion, smuggling and dishonest practices on either side. If and when the airport in Jerusalem (Qalandia) is reopened, this system could be implemented in a manner similar to the arrangement in Geneva, where France shares "half" of the airport. And if Israel agrees to the building of an industrial zone in Tarkumiya (as proposed by the Turkish private sector), its "borders" and tax regime could be handled in the same way.

Land Transport

Getting both sides to agree on joint border management would enable Palestine and Israel to cooperate on land transportation - especially trains. On the one hand, Palestine currently has no incentive to reduce pollution in central Israel caused by trucks transporting Palestinian goods to Israeli markets. Israel, on the other hand, has great interest in this area. One way to encourage Palestinian interest in reducing pollution and its hazards is to introduce the use of trains. Due to limitations in economic development and size, it is obvious that Palestine on its own cannot (and probably will not) invest in a railway system. But it is of great importance to Israel to help Palestine do just that. If the Turkish TOBB establishes a commercial and industrial zone in the areas of Erez (near Gaza), Tarkumiya or Jenin, it is in Israel's interest to connect these areas to its railway system. And if the "price" is connecting Jenin, Nablus or Ramallah to the train system - it is still a worthwhile project, even if it may not be profitable in terms of classical economic accounting.

Energy

A lot has been said about the value of cooperation in energy projects. Yet, this seems the least likely, as there is no real need for either side to cooperate in this area. The truth is that Palestine has no energy sources of its own, and Israel's electricity needs exceed its capacity. Both countries are short of energy, and both need to invest heavily in power stations of various kinds. There is no bonus, at present, for any cooperation in this area. Since Israel supplies most of the energy in Palestine, it would be quite willing to reduce its export of energy in order to better meet the domestic demand. Palestine would be happy to invest in energy in order to reduce its dependence on Israel. There is no need to change policies at this stage of energy (mis) development.

Politics

The only problem with infrastructure projects as proposed here is political. Does the PA have the will to use its funds to build clinics and invest in water purification plants and trains, when unemployment is skyrocketing? Although long-term economic and social development depend on such investment, it is doubtful that the government of President Mahmoud Abbas (Abu Mazen) and Prime Minister Salam Fayyad has the power to face its public and insist on investing in a future that may seem distant and unrealistic, in view of what Israel is doing in the occupied areas.
Conversely, will Israel agree to loosen its grip over Palestine and allow it to manage its own affairs (such as tax collection)? Israelis are so used to treating Palestinians as an inferior class that the idea of their being equal in managing water, for example, may seem almost heretical. But those who seek a way to put a stop to the gradual crumbling of the Palestinian economy (and both governments pay lip service to this wish) - have to make a choice. Israel, by far the stronger side, is addicted to control, but most (not all) of the responsibility for breaking the deadlock is squarely on its shoulders. And, as I have tried to show here, this could be relatively easy and profitable.

Endnotes

1 A far-reaching and different approach to infrastructure was taken by the Rand Corporation in its "The Arc" document (http://www.rand.org/pubs/monographs/MG327-1/).