Reviews two recent studies on the economics of Middle East peace
Project on Economic Transition

Various authors. The Institute for Social and Economic Policy in the Middle East, Harvard Univ. Cambridge, Massachusetts, June 1993. 115 pp. No price stated.

Palestinians, Israelis & the Regional Economy.

Simcha Bahiri and Samir Huleileh with Daniel Gavron. Israel/Palestine Center for Research and Information IPCRI, Jerusalem, 1993. 129 pp. No price stated.

The fact that the success of the historical Israeli-Palestinian agreement of September 13, 1993 depends upon an economic "revo¬lution" in the life of the Pales¬tinians already sounds so much like a hackneyed cliché that one is reluctant to reiterate it yet again. The Rabin-Arafat agreement indeed holds out the prospect of ending a hundred years of conflict and bloodshed; but economists warn, and politicians agree, that "Gaza First" could turn out to be an empty slogan unless the overdue satisfaction of legitimate political aspirations is accompanied by real change in the hard daily life of the people there and on the West Bank. It is no coincidence that the first issue of Palestine-Israel Journal chose to focus on economics.
As their titles imply, these two booklets deal with the problems and perspectives of peace eco¬nomics. In a spirit of cautious optimism, they make an important contribution to our understanding of the subject since, although they were both published shortly before the breakthrough in the peace talks, their approach is both timely and realistic. Happily, although they deal with complex economic topics, laymen as well as specialists can read and appreciate nearly all the material.
Securing Peace in the Middle East is a longer and more expensively produced work than the more compact and readable Peace Pays. (Although even on a limited budget it would have paid the producers of the latter booklet to employ somebody to proof read the text). Whereas Peace Pays is mainly the work of three writers, including one Israeli and one Palestinian economist, Securing Peace enjoyed an editorial board of three, seven working groups and over 50 participating economists, Israeli, Palestinian, Jordanian and American (as well as an impressive list of supporting individuals and organizations). It deals both with economic analysis and the structural-organizational ramifi¬cations. All this gives it an academic, comprehensive, detailed and authoritative flavor. Peace Pays is also professional, but more ideologically-oriented. However, despite their differences, they are both important, the most signi¬ficant point being that they repre¬sent common professional endeavors of Israeli, Palestinian, and - in the case of Securing Peace - Jordanian Economists, working as equals and grappling with the vital question of what peace may bring the peoples of the region in economic terms.
In comparing economic futures the authors of Peace Pays differentiate between (1) normative forecasting: what must be done in order to achieve certain results (2) explo¬ratory forecasting: what happens if certain actions are taken (3) extrapolative forecasting: project¬ing existing trends into the future, and (4) intuitive forecasting: utilizing specialist knowledge and expert opinion - often involving analogies. There is, of course, no clear borderline between these four categories. Anyone expecting more precision from those engaged in economics than from (say) sociologists, not to speak of politicians, might note how much unreliable economic forecasting has been thrown at the public in the press since the Israel-PLO agree¬ment was announced.
For example, how much outside financial support will the Palestinians need over the next 10 years to support the peace agreement? The generally accepted figure, that of the World Bank, is $3 billion over ten years. However, the head of the economic department of the Israeli foreign ministry reportedly put it at $4.3 billion (Yedioth Aharonot 8.9.93). A team of 100 Palestinian economists headed by Prof. Yussuf Sa'id says a modern Palestinian economy will need investments of about $11.5 billion over seven years (Yedioth Aharonot 7.9.93). It looks as if there is a discrepancy between those figures and those of the World Bank. Israel's Finance Minister speaks of pouring $600 million a year into the territories. In Peace Pays, it is estimated that the Palestinians will be able to mobilize some $1.2 billion for investment annually by 1998, and this will increase in the subsequent period. Securing Peace, which in general tends to concentrate on thorough economic analysis and to eschew economic forecasting, is more careful about entering into detailed estimate of the likely future revenue needed by the Palestinian Interim Self-Governing Authority. Like the World Bank, its rough estimate is that $3 billion will be needed for investment in the Palestinian infrastructure over 10 years. The broad lesson here seems to be that, while our current world is incomprehensible without economists, even the best trained and best intentioned experts are fallible human beings whose work is not lacking smaller or larger margins of error.
One unconventional Israeli economist even dismisses much of the talk about regional peace dividends as "pie in the sky" (Eliahu Kanovsky, Jerusalem Post 29.9.93); but there seems to be a general feeling among many knowledgeable observers, based on past experience, that foreign aid, vital as it is, must be carefully used.
Both these works are to be recommended. The former Director¬General of the Israeli Finance Ministry, Yaakov Lifshitz wrote of Peace Pays (Ha'aretz 14.9.93). "It is an attempt to undertake a full and long term macro-economic reckoning, using a systematic formal model so as to prove professionally that 'peace pays'''. As for Securing Peace, the prestigious sponsorship (Harvard and MIT) and the large number of distinguished participants (too many to mention here indivi¬dually) guarantee its professional credentials. It is not without reason that the authors write of their "hope and belief that the report and spirit in which it was written will contribute to the economic development of the Palestinian, Jordanian and Israeli economies, and thus to peace."
For a non-expert, one of the surprising aspects of both works is their generally optimistic tone. After all, the starting point of the Israeli and Palestinian economies is totally distorted. Israel's GNP is about 15 times that of Jordan, 30 times that of the West Bank and 60 times that of Gaza. However, it is pointed out that the Palestinians are rich in human resources, which can be fully exploited in an independent state, integrated peacefully into the region and enjoying the support of its own Diaspora and of the international community. Both the Israeli and regional economies have no less to gain than that of the Palestinians from peace.
The mechanisms of peace economics are differently examined in the two publications. Securing Peace suggests that, notwith¬standing the government's role, the Palestinians should rely not only on substantially free trade but also on the leading role of the private sector and market forces. For its part, Peace Pays contends that the important work of disarmament and industrial conversion needs government intervention and comprehensive planning. Both, however, without underestimating the problems ahead, end up with optimistic appraisals of the economic future of the parties to the Israel-Arab conflict and of the region as a whole. While the Peace Pays projections range far ahead (up to 2008), Securing Peace deals only with the interim self-¬government period until 1998.
Thus in a comprehensive peace scenario Peace Pays projects an Israeli population of 7.2 million by the year 2008 with a GNP of over $118 billion, about twice today's figure. By that date, it forecasts, the Palestinian GNP will approach $9 billion (more than a threefold growth) for a population of 4.5 million. These leaps forward will of course be expressed in living standards. On the other hand, in the event of "frozen autonomy", entailing continued Israeli occupation of the territories, less than half such progress is forecast.
It is interesting to note that according to Peace Pays (Bahiri) Israel was making a handsome profit from exploiting the territories up to 1987; but the Intifada converted this into a loss. As for the Palestinian economy, it initially experienced growth under the occupation; but generally Israel made use of its political and economic advantages to the detriment of the development of the Palestinian economy.
Huleileh notes that "the Palestine to which the first Jewish immigrants came (about a century ago D.L.) possessed a viable subsistence economy, which was one of the most developed in the Middle East". Under the British Mandate, "the Palestinian Arabs saw one set of aliens (the British) handing over their country to another (the Jews) with the cooperation of absentee feudal landlords". Not always seeing eye to eye on the past, Bahiri and Huleileh write separately on the economic background up to 1992. Huleileh is one of the economists contributing to these two booklets, who were appointed as members and advisors of the delegations to the current peace talks.
The authors of Peace Pays call themselves "pragmatic vision¬aries", while those of Securing Peace write that we "occasionally marveled to ourselves over the extraordinary fact that Palestin¬ians, Jordanians and Israelis were sitting down together to try to solve the problems posed by the economics of the peace process." These are first steps along what is bound to be a long and arduous road for both peoples. Let us hope that, with the way having at long last been opened, what seems extra¬ordinary to those bold enough to take the first strides will look increasingly commonplace as the peace process moves forward.