The Political Economy of Israel's Occupation: Repression Beyond Exploitation

The Political Economy of Israel's Occupation: Repression Beyond Exploitation

by Shir Hever

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The Israeli occupation of the Palestinian territories since 1967 has many important economic aspects that are often overlooked. In this highly original book, Shir Hever shows that understanding the economic dimensions of the occupation is crucial to unravelling the Israeli-Palestinian conflict.

Hever rejects the premise that Israel keeps control over Palestinian territories for material gain, and also the premise that Israel is merely defending itself from Palestinian aggression. Instead, he argues that the occupation has reached an impasse, with the Palestinian resistance making exploitation of the Palestinians by Israeli business interests difficult, but the Israeli authorities reluctant to give up control.

With traditional economic analysis failing to explain this turn of events, this book will be invaluable for students, activists and journalists struggling to make sense of the complex issues surrounding Israel's occupation.

Product Details

ISBN-13: 9781783714186
Publisher: Pluto Press
Publication date: 08/06/2010
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 240
File size: 2 MB

About the Author

Shir Hever is an economic researcher based at the Alternative Information Centre in Jerusalem. He is the author of The Privatisation of Israeli Security (Pluto, 2017) and The Political Economy of Israel's Occupation (Pluto, 2010).

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The Palestinian economy under occupation has undergone many changes, but its defining characteristic is still that it has been under the control of a hostile foreign power for over 42 years. Today, every aspect of the Palestinian economy is affected by Israel.

From an economic perspective, the early years of the occupation brought an unexpected wave of prosperity to the Palestinian population. Taking their lesson from the wave of decolonization and the mid-century fall of empires, Israeli forces used light-handed methods to control the Palestinians, relying on the cooperation of the occupied population, and took steps to ensure the continued functioning of the Palestinian economy (Gazit, 1985: 73–4, 251). There are five main reasons that the Palestinian economy experienced a boom shortly after the Israeli occupation.

First, in order to minimize cheap exports to the Israeli market (Yahav, 2004: 72–4), Israel followed an "open bridges" policy, which enabled the Palestinians to continue to trade with Jordan and to some extent with Egypt, countries with which Israel did not have diplomatic relations at the time (Gazit, 1985: 206–15). Second, Israeli professionals were sent to the occupied territories to "modernize" the Palestinian economy – implementing innovations in irrigation, vaccination of livestock and land reclamation (Gordon, 2008b; Kanovski, 1970: 61–2). Third, Israelis began to tour the Palestinian territories, marveling at the cheap prices and buying local products (Segev, 2005: 457, 476). Fourth, and most importantly, Israeli employers began to employ Palestinian workers, paying them only a fraction of what Israeli workers would normally get. These salaries were nonetheless considerably higher than the wages for jobs within the West Bank and Gaza, resulting in a surge of the Palestinian population's income in the OPT. The Israeli government even created special projects to employ Palestinians in order to secure employment for the occupied population (Gordon, 2008b: 62–9, 78; Kanovski, 1970: 61–2). Fifth and last, after the rise of oil prices in 1973, the Gulf states began to encourage Palestinian migrant laborers to perform skilled work in these newly wealthy countries. Remittances from these workers were sent back to the OPT and promoted growth in the Palestinian economy (Awartani, 1988).

However, although this period of relative prosperity was shaped by Israeli economic interests, it was not an accidental result of the situation that emerged after the occupation, but the outcome of a premeditated and well-planned policy of the Israeli Ministry of Defense and the military leadership. High-ranking Israeli officials have attested that they made conscious efforts to improve the standard of living of Palestinians and increase employment and productivity, in order to improve their control over the occupied population and stifle resistance (Gordon, 2008b: 62–9).

These policies were largely successful in suppressing Palestinian resistance for the first two decades of occupation. They made it more difficult for the Palestine Liberation Organization (PLO) to recruit members, and hid the true extent of the subjugation of the Palestinian economy to Israel. Israel's authorities put in place a complex system forcing Palestinians to obtain permits for nearly any economic activity, from going to work inside Israel to setting up a shop in the OPT. These permits had to be renewed repeatedly, and were revoked in the case of any Palestinian accused by the General Security Service (GSS) of dissenting political activity (Gordon, 2008b: 62–9).

Between 1968 and 1972, the West Bank saw an average annual growth rate of 15 percent, and the Gaza Strip of 11 percent (Arnon, 2007). Although rapid growth was expected, as the Palestinian economy was still recovering towards its prewar economic levels, the Central Bank of Israel published a report stressing how the occupation benefited the Palestinian population (Bergman, 1974: 1–3).

However, in parallel with these measures benefiting the Palestinian population, severe restrictions were imposed as well. Israel prevented the Palestinians from developing any local industries that could possibly compete with Israeli industries (including most types of heavy manufacturing, as well as many forms of light manufacturing), augmenting and perpetuating the Palestinian economy's dependency on Israeli imports. Industry's share of the Palestinian GDP fell from 9 percent in 1968 to 7 percent in 1987. Israel also prevented the Palestinians from operating financial institutions in the OPT (Arnon et al., 1997: 80; Gordon, 2008b: 71–6).

The Palestinian economy has grown in overall size, as measured in total income and in average household consumption, but it has also become increasingly dependent on the Israeli economy. As local sources of income were suppressed by Israeli authorities, the main source of income to the Palestinians became remittances from Palestinian workers working in Israel, in the Jewish settlements in the OPT, and in the Gulf states. By 1974, a third of the Palestinian workforce was already employed in Israel, comprising nearly 70,000 workers. Many Palestinian farmers abandoned their farmlands in order to work in Israel, and Israeli authorities often took advantage of this and confiscated land that remained uncultivated for a certain period of time (Gordon, 2008b: 128–31).

The changes in the Palestinian economy also had a profound impact on Palestinian society. They have affected the authority structure within the household and the status of women in society. Since only Palestinians who avoided political activity were able to receive work permits from the Israeli authorities, the class divide also began to signify a political division within Palestinian society (Gordon, 2008b: 119–22). The Palestinians who worked in Israel, however, also became keenly aware of the great disparity in freedom of speech and political action between Israeli citizens and Palestinian subjects in the OPT (Azoulay and Ophir, 2008: 140–3).

After ten years of occupation, disillusionment came quickly. The 1980s marked the end of the trend of economic prosperity under occupation, and the Palestinian economy suffered a series of blows, unmitigated by the proceeds from its new contact with the Israeli economy. Declining oil prices during the 1980s (US Department of Energy, 2008) significantly reduced the demand for Palestinian migrant workers in the Gulf states, thus depleting a major source of income to the Palestinian families back in the West Bank and the Gaza strip – remittances from migrant labor. Second, Israel itself was undergoing economic upheavals, with extremely high inflation followed by a massive collapse in the stock market. This led to a rapid deterioration in the real income generated by Palestinian workers in Israel, and to the tightening of work opportunities for Palestinians in Israel. Palestinian workers in Israel reported abuses, humiliation, and discrimination. Accumulated frustration and resentment, together with the sudden drop in income, formed an explosive combination (Angrist, 1996; Gordon, 2008b: 150–4). Third, the rapidly growing population of Jewish settlers expanded into the OPT by building on confiscated Palestinian land, with more land being confiscated or fenced off to serve the settlers' security demands. This continuing loss of land has had a cumulative negative impact on the Palestinian economy (Yahav, 2004: 73–5). And finally, the Israeli government ceased its efforts to support the Palestinian economy, and stopped trying to create employment for Palestinians, or ease the burden of the occupation (Gordon, 2008b: 78–9).

There were many causes for the first intifada, the rebellion against Israel's occupation which erupted in 1987. The economic deterioration in the occupied territories described above was one of the most important reasons, though not the only one (Schiff, Yaari, and Friedman, 1990: 92). Even if the occupation had been economically gainful to the Palestinians, it was naïve to think that the Palestinians would simply give up their personal and collective freedom, their national aspirations, and their dignity for money.


The escalation of the conflict between Israel and the Palestinians has taken a heavy toll on the Palestinian economy, and the estimated decline in the standard of living is 30–40 per cent (Gordon, 2008b: 166–8). Many saw the Oslo Process (1993–2000) as offering hope for a recovery of the Palestinian economy, as well as a chance for Palestinian sovereignty, independence, and freedom from occupation (Gross, 2000). However, because of the closure regime that was implemented by Israel in parallel with the negotiations – preventing Palestinians from entering Israel to work or do business, and even from moving freely within the OPT – the standard of living of the Palestinians actually fell during the Oslo years. The hope that prosperity and peace would reinforce each other in a reciprocal way has persisted in Israel, which enjoyed a high growth rate, but has dwindled rapidly in the occupied territories, where the Oslo years brought only poverty and unemployment (Arnon and Weinblatt, 2001).

When the Oslo negotiations began, they were managed mostly by Shimon Peres, who filled the negotiating team with representatives of Israeli business interests. Israeli company owners were hoping to transform the occupation from a colonial into a neocolonial project, to allow the Palestinians their own autonomy (in order to keep the population docile), but to ensure continued economic dependency (Selby, 2003: 76–9, 95–7).

The main achievement of the negotiating team during those years was the signing of the Oslo Accords. The 1994 Protocol on Economic Relations, signed by representatives of Israel and the PLO on April 29 in Paris, was meant to resolve the economic issues raised by the Oslo Accords. The accords themselves offered a trade-off: until a final status agreement was reached, Israel would control customs and trade, while Palestinians would be allowed to enter Israel and work there. However, the latter part of the agreement fell apart with the closures that Israel imposed on the OPT, and only the customs union remained in effect (Arnon et. al., 1997: 36–7, 62, 83–4, 225–7, 236–8). The limitations imposed on Palestinian workers entering Israel, in violation of the agreements, caused a serious decline in the Palestinian economy because of the loss of this central income source (Farsakh, 2002).

This economic arrangement has effectively extended the system that has existed in the OPT since 1967 of a single customs envelope controlled by Israel. It has been estimated that the loss of revenue to the Palestinian economy during the years from 1970 to 1987 as a result of the one-sided customs envelope totaled US $6–11 billion, or about 13 percent of the Palestinians' GDP. It could thus be argued that until 1995, when Israel began to transfer the customs revenue to the Palestinian Authority (PA), the lost revenue accumulated even more. The agreements did not mention returning this money to the Palestinians (Gordon, 2008b: 186).

Yitzhak Rabin, Israel's prime minister during the first years of the Oslo negotiations, rejected Peres's move towards an economic neocolonial model. Rabin, a former general, pursued a policy aimed at ensuring that peace would free the Israeli army to focus on military operations and cease to act as a policing force in the OPT. He also tried to impose a strict separation between the Israeli and Palestinian populations, and seal Israel's borders. Thus, in 1995 Rabin replaced members of the negotiating team with like-minded military men. Although the economic agreements were not renounced, the policy of separation was used to prevent Palestinian workers from entering Israel, thus effectively breaking the agreements (Selby, 2003: 135).

During the Oslo years, from 1994 to 2000, Israel enjoyed an economic boom, fueled by immigration from the former Soviet Union, by loan guarantees from the United States, and by massive international investment in the Israeli economy. Israel was then seen as a country on the path to peace. Also, the Arab boycott against Israel was largely dismantled. During the same years the Palestinian economy contracted, with poverty and unemployment increasing. In the Oslo years, Israel's per-capita GDP increased by 14.2 percent, while Palestinian per-capita GDP fell by 3.8 percent (Gordon, 2008b: 183). For the first time since the 1967 occupation, the Israeli and Palestinian economies were moving in opposite directions.

In September 2000, the second intifada broke out after Ariel Sharon entered the Al-Aqsa Mosque (Honig-Parnass, 2001), the drinking-water crisis in the Gaza Strip (Gray, 2007), and the collapse of the negotiations between the Palestinian Authority and Israel (Philo and Berry, 2004: 83–7). Most importantly, the intifada expressed the disillusionment of the general Palestinian public with the peace process, after seven years in which Israel had made almost no concessions or withdrawals, and the economic situation in the occupied territories had kept on deteriorating (Arnon and Weinblatt, 2001).

Following the collapse of negotiations and the outbreak of the second intifada, a quick escalation in the level of violence provoked a crisis in both the Israeli and Palestinian economies. The effect on the Israeli economy was to rapidly widen social gaps between rich and poor, since some parts of the population were able to weather the recession and even profit from the escalating conflict. For the Palestinians, poverty and unemployment spiked, income fell, and the Palestinian economy became dependent on international aid to stave off a massive humanitarian catastrophe (Brauman, Hilal and Ophir, 2005). The years since the outbreak of the second intifada have been years of economic standstill for the Palestinians. The opportunities to work in Israel have dwindled, international donors have been reluctant to restart development efforts after the first wave of efforts was foiled by Israel, and military conflict has kept investments low and poverty high (PCBS, PMA, and MAS, 2007).

During these years it became increasingly apparent that the Palestinian Authority is not the forerunner of a future independent state, but rather a kind of rentier state, built on favoritism, international support, and Israeli manipulation. The Palestinian Authority's reliance on income collected on its behalf by Israel, and on the economic power of certain monopolies owned by people close to the PA leadership, has made it very vulnerable to pressure from Israeli economic interests (Selby, 2005). In fact, Rabin once said that he believed the Palestinian Authority would control the Palestinian population for Israel without the limitations on the use of power that the Israeli legal system imposes on the Israeli forces, a policy which Neve Gordon calls "outsourcing the occupation" (Gordon, 2008b: 169–96). The Palestinian Authority has failed to improve the living conditions of Palestinians under occupation, and the practicalities of its own survival have often pushed it to act in collusion with Israel's occupation policies. This has become especially apparent following the appointment of Salam Fayyad as prime minister of the Palestinian Authority despite the results of the January 2006 elections. PA police officers have turned their guns against Palestinian protestors, and failed to defend the civilians under their charge from Israeli settlers and military attacks (Warschawski, 2008a; Reuters, 2008).


In order to shift the blame for the lack of economic development away from Israel, Israeli officials and their supporters have frequently argued that the Palestinian Authority is a corrupt institution, which has been wasting its funds paying bribes and amassing wealth for the leadership, while neglecting the needs of the Palestinian people. Many Palestinians have also joined this criticism, as they also felt they have a right to expect more from their leadership, and were not satisfied with the Palestinian Authority's public services. In 2001 only 17 percent of Palestinian households received assistance from the Palestinian Authority, compared to 18 percent from religious organizations, 45 percent from the UN Relief and Works Agency (UNRWA), and 20 percent from other sources (JMCC, 2001, fig. 14).

These accusations have overlooked the role played by Israel and the international community in shaping the economic structure of the Palestinian Authority. The Palestinian Authority has been excluded from providing many public services because these were being disbursed, often with greater efficiency, by the United Nations or by non-governmental organizations (NGOs), and because one of its main sources of budget is Israel – that is, customs and value-added tax (VAT) collected on the Palestinian Authority's behalf by Israel. During the early PA years, Israel transferred many of these funds directly to a bank account belonging to Yasser Arafat, then chairman of the Palestinian Authority (Selby, 2005). Israel did this because Israeli officials were hoping that Arafat would use these funds to cement his leadership and purchase the political support that he needed in order to make significant concessions in the negotiations.


Excerpted from "The Political Economy of Israel's Occupation"
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Copyright © 2010 Shir Hever.
Excerpted by permission of Pluto Press.
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Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Acknowledgements Preface Part I Introduction 1. Background on the Palestinian Economy Part II: Selected Topics in the Economy of the Occupation 2. International Aid 3. Inflation in the OPT 4. Economic Cost of the Occupation to Israel 5. Trends in the Israeli Economy 6. Case Study: The Wall in Jerusalem Part III: Implications of the Economy of the Occupation 7. Beyond Exploitation Chapter 8 – Theoretical Analysis and Binationalism Conclusion Bibliography Index

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