Mistreatment of Palestinians will bankrupt Israel


Reports of bankruptcy danger from Jonathan Cook, 1 and Arutz Sheva, 4. Rand Corporation in between, 3 and 4.

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Hundreds of thousands of Israeli Haredi Orthodox Jews protest against a measure to compel them to do militarry service, as is required of all other Israelis, March 2, 2014. Photo by Yaakov Naumi/FLASH90

Israel’s behaviour will bankrupt it over time

By Jonathan Cook, blog
June 15, 2015

Two recent reports suggest that Israel could face catastrophic consequences if it fails to end the mistreatment of Palestinians under its rule, whether in the occupied territories or in Israel itself.

The Rand Corporation’s research shows that Israel could lose $250 billion (Dh919bn) over the next decade if it fails to make peace with the Palestinians and there is a return to violence. Ending the occupation, on the other hand, could bring a dividend of more than $120 billion into the nation’s coffers.

Meanwhile, the Israeli finance ministry predicts an even more dismal future unless Israel reinvents itself. It is likely to be bankrupt within a few decades, the finance ministry report says, because of the rapid growth of two unproductive groups.

By 2059, half the population will be either ultra-Orthodox Jews, who prefer prayer to work, or members of Israel’s Palestinian minority, most of whom are failed by their separate education system and then excluded from much of the economy.

Both reports should be generating a tidal wave of concern in Israel but have caused barely a ripple. The status quo – of occupation and endemic racism – still seems preferable to most Israelis.

Any explanation requires deeper analysis than either the Rand Corporation or Israel’s finance ministry appear capable of.

The finance ministry report points out that with a growing population not properly prepared for a modern global economy, the tax burden is increasingly falling on a shrinking middle class.

The fear is that this will create a vicious cycle. Wealthier Israelis tend to have second passports. Overwhelmed by the need to make up the revenue shortfall, they will leave, plunging Israel into irreversible debt.

Despite this doomsday scenario, Israel seems far from ready to undertake the urgent restructuring needed to salvage its economy. Zionism, Israel’s official ideology, is predicated on core principles of ethnic separation, Judaisation of territory and Hebrew labour. It has always depended on the marginalisation at best, exclusion at worst, of non-Jews.

Any effort to dismantle the scaffolding of a Jewish state would create a political crisis. Reforms may happen, but they are likely to take place too incrementally to make much difference.

The Rand report also raises the alarm. It notes that both peoples would benefit from peace, though the incentive is stronger for Palestinians. Integration into the Middle East would see average wages rise by only five per cent for Israelis, compared to 36 per cent for Palestinians.

But, while economists may have been able to quantify the benefits of ending the occupation, it is much harder to assess the costs in shekels and dollars.

Over the past six decades, an economic elite has emerged in Israel, whose prestige, power and wealth depends on the occupation. Career military officers earn large salaries and retire in their early forties on generous pensions. Nowadays, more of these officers live in the settlements.

The army top brass are the ultimate pressure group and will not release their grip on the occupied territories without a fight, one they are well placed to win. Backing them will be those in the hi-tech sector who have become the engine of the Israeli economy. They realised the occupied territories were the ideal laboratory for developing and testing military hardware and software.

Israel’s excellence in weaponry, surveillance systems, containment strategies, biometric data collection, crowd control and psychological warfare are all marketable. Israeli know-how has become indispensable to the global appetite for “homeland security”.

That expertise was on show this month at a Tel Aviv armaments expo that attracted thousands of security officials from around the world, drawn by the selling point that the systems on offer were “combat proven”.

To end the occupation would be to sacrifice all this and revert to being a tiny anonymous state without notable exports.

And finally the settlers are among the most ideologically committed and entitled sectors of Israel’s population. Were they moved out, they would bring their group cohesion and profound resentments into Israel.

No Israeli leader wants to unleash a civil war that could rip apart the already fragile sense of unity among the Jewish population.

The reality is that most Israelis’ perception of their national interests, both as a Jewish state and as a military power, are intimately tied to a permanent occupation and the exclusion of Israel’s Palestinian minority from true citizenship.

If there is a conclusion to be drawn from these two reports it has to be a pessimistic one.

Israel’s internal economy is likely to grow gradually weaker because both the ultra-Orthodox and Palestinian labour forces are underutilised. As a result, the focus of Israel’s economic interests and activity is likely to shift even more towards the occupied territories.

Far from Israelis rethinking their oppressive policies towards the Palestinians, the ideological blinkers imposed by Zionism could push them to pursue the benefits of the occupation even more aggressively.
If the watching world really wants peace, economic wishful thinking will not suffice. It is past the time simply for carrots. Sticks are needed too.



Israelis Stand to Gain $120 Billion, Palestinians $50 Billion in Two-State Solution Over Next Decade

By Rand.org
June 08, 2015

The Israeli economy stands to gain more than $120 billion over the next decade in a two-state solution, a possible resolution of the long-standing conflict between Israelis and Palestinians in which the Palestinians gain independence and relations between the Israelis and their neighbors normalize, according to a new RAND Corporation study. Palestinians would gain $50 billion, with average per-capita income rising by about 36 percent.

A return to violence, by contrast, would have profoundly negative economic consequences for both Palestinians and Israelis over the next decade, with the Israeli economy losing some $250 billion in foregone economic opportunities. The Palestinians could see their per-capita gross domestic product fall by as much as 46 percent under this scenario.

The estimates are part of a systematic effort to quantify the likely economic and security costs and benefits of five alternative futures for the conflict relative to present trends. RAND researchers also estimate the costs likely to be borne by the international community and consider intangible dimensions, such as perceived security risk and sovereignty aspirations, suggesting how such factors might affect the course of the conflict and efforts to resolve it.

“We hope our analysis and tools can help Israelis, Palestinians and the international community understand more clearly how present trends are evolving and recognize the costs and benefits of alternatives to the current destructive cycle of action, reaction and inaction,” said C. Ross Anthony, co-leader of the study and director of RAND’s Israeli-Palestinian Initiative.

Besides the two-state and return-to-violence scenarios, RAND considered three additional alternative futures: a co-ordinated unilateral withdrawal from the West Bank by Israel, unco-ordinated withdrawal where Palestinians do not co-operate with Israeli unilateral moves, and non-violent resistance by Palestinians. Unless withdrawal were co-ordinated, the cost of moving Israeli settlers from the West Bank would impose large economic costs on Israel.

In the non-violent resistance scenario, Palestinians would take actions to put economic and international pressure on the Israelis — a scenario some observers note may already be unfolding. In this event, Israelis could lose $80 billion and Palestinians could lose $12 billion relative to current trends. But compared with a two-state solution, losses from the non-violent resistance scenario become even more dramatic: about $200 billion for the Israelis and $60 billion for the Palestinians.

The implications of a unilateral withdrawal by Israel of West Bank settlers would depend greatly on the degree of coordination. If the Israelis were able to coordinate with both the Palestinians and international community, the overall impact on the Israeli economy would be negligible and the Palestinian economy would benefit from an economic dividend of nearly $8 billion over a 10-year period. However, with no coordination, the Israelis would stand to lose $20 billion.

“A two-state solution produces by far the best economic outcomes for both Israelis and Palestinians,” said Charles Ries, co-leader of the study and vice president, international at RAND, a nonprofit research organization. “In a decade, the average Israeli would see his or her income rise by about $2,200, vs. a $1,000 gain for Palestinians, compared with our projection for present trends. But that only works out to 5 percent for each Israeli, vs. 36 percent for the average Palestinian, meaning Israelis have far less and Palestinians far more economic incentive to move toward peace.”

Calculations of the economic costs and benefits of each scenario rely on an innovative “Cost of Conflict Calculator.” The calculator provides itemized cost breakdowns of the economic costs and benefits of each scenario, and allows users to change assumptions in order to investigate a full range of policy scenarios. In analyzing each alternative future, researchers relied on historical precedent, published data and interviews with subject matter experts.

Non-economic factors also constitute powerful barriers to resolving the impasse. Besides the perceived security risk and sovereignty aspirations, these include the significant power imbalance between Israel and the Palestinians, as well as a lack of political consensus on both sides, as deep political and religious divisions make it more difficult to garner popular support for compromises. One of the most powerful intangibles is the clash of each side’s historical narrative, researchers say. While the narratives bear some similarities (feelings of isolation, victimization, mistrust and betrayal), they are in fundamental conflict.

The study was reviewed in draft form by a dozen experts including Israelis, Palestinians and specialists from other countries. Its other authors are Daniel Egel, Craig Bond, Andrew Liepman, Jeff Martini, Bradley Stein, Shira Efron, Steven Simon, Lynsay Ayer and Mary Vaiana.

The study is dedicated to the late visionary philanthropist David K. Richards, who sponsored it with his wife, Carol.


The Costs of the Israeli-Palestinian Conflict

By C. Ross Anthony, Daniel Egel, Charles P. Ries, Craig Bond, Andrew Liepman, Jeffrey Martini, Steven Simon, Shira Efron, Bradley D. Stein, Lynsay Ayer, Mary E. Vaiana, Rand Corporation

Research Questions

What are the net costs and benefits to Israelis and Palestinians if the current impasse endures over the next ten years, relative to several alternative trajectories that the conflict could take?

What noneconomic factors surrounding the conflict might influence the parties’ assessment of the value of alternative trajectories?

What are the longer-term implications — beyond the next ten years — of the impasse for Israel, the West Bank and Gaza, and the international community?

Abstract

For much of the past century, the conflict between Israelis and Palestinians has been a defining feature of the Middle East. Despite billions of dollars expended to support, oppose, or seek to resolve it, the conflict has endured for decades, with periodic violent eruptions, of which the Israel-Gaza confrontation in the summer of 2014 is only the most recent.

This study estimates the net costs and benefits over the next ten years of five alternative trajectories — a two-state solution, coordinated unilateral withdrawal, uncoordinated unilateral withdrawal, nonviolent resistance, and violent uprising — compared with the costs and benefits of a continuing impasse that evolves in accordance with present trends. The analysis focuses on economic costs related to the conflict, including the economic costs of security. In addition, intangible costs are briefly examined, and the costs of each scenario to the international community have been calculated.

The study’s focus emerged from an extensive scoping exercise designed to identify how RAND’s objective, fact-based approach might promote fruitful policy discussion. The overarching goal is to give all parties comprehensive, reliable information about available choices and their expected costs and consequences.

Seven key findings were identified: A two-state solution provides by far the best economic outcomes for both Israelis and Palestinians. Israelis would gain over three times more than the Palestinians in absolute terms — $123 billion versus $50 billion over ten years. But the Palestinians would gain more proportionately, with average per capita income increasing by approximately 36 percent over what it would have been in 2024, versus 5 percent for the average Israeli. A return to violence would have profoundly negative economic consequences for both Palestinians and Israelis; per capita gross domestic product would fall by 46 percent in the West Bank and Gaza and by 10 percent in Israel by 2024. In most scenarios, the value of economic opportunities gained or lost by both parties is much larger than expected changes in direct costs. Unilateral withdrawal by Israel from the West Bank would impose large economic costs on Israelis unless the international community shoulders a substantial portion of the costs of relocating settlers. Intangible factors, such as each party’s security and sovereignty aspirations, are critical considerations in understanding and resolving the impasse. Taking advantage of the economic opportunities of a two-state solution would require substantial investments from the public and private sectors of the international community and from both parties.

Key Findings

Results of Economic Analysis of the Five Scenarios
A two-state solution provides by far the best economic outcomes for both Israelis and Palestinians. Israelis would gain over three times more than the Palestinians in absolute terms — $123 billion versus $50 billion over ten years.

But the Palestinians would gain more proportionately, with average per capita income increasing by approximately 36 percent over what it would have been in 2024, versus 5 percent for the average Israeli.
A return to violence would have profoundly negative economic consequences for both Palestinians and Israelis; per capita gross domestic product would fall by 46 percent in the West Bank and Gaza and by 10 percent in Israel by 2024.

In most scenarios, the value of economic opportunities gained or lost by both parties is much larger than expected changes in direct costs.

Unilateral withdrawal by Israel from the West Bank would impose large economic costs on Israelis unless the international community shoulders a substantial portion of the costs of relocating settlers.
Intangible factors, such as each party’s security and sovereignty aspirations, are critical considerations in understanding and resolving the impasse.

Taking advantage of the economic opportunities of a two-state solution would require substantial investments from the public and private sectors of the international community and from both parties.

Click here for the full report , pdf.


Finance Ministry Warns Israel May Go Bankrupt

Finance Ministry economist warns Israel could face a crisis like Greece’s by 2059, if haredim and Arabs don’t go to work.

By Ari Yashar, Arutz Sheva
June 01, 2015

Finance Ministry economist Assaf Geva has spent the last 18 months analyzing the long-term demographic projections published by the Central Bureau of Statistics (CBS) two years ago, which project how Israel will look in 2059.

According to Geva’s estimation, government spending will swell by 1.2 percentage points faster than the GDP every year as Israel’s population ages, reports Haaretz.

While government revenues will grow 0.4 points faster than the GDP, largely thanks to Israel tapping into its natural gas reserves, work-related taxes will diminish as more and more Israelis retire.

However ageing isn’t the only reason the government will have less work-related taxes to pull from; according to the CBS forecast, the haredi and Arab population will both grow rapidly, with both groups featuring high unemployment rates. Among the Arab population critics have said unemployment rates belie rampant off-the-books employment, while many haredim opt to spend their time in Torah study instead of working.

By 2059 the haredi population is projected to jump from 11.1% today to a full 26.6%, while the Arab population is expected to grow from 20.9% to 23.1%.

Partially as a result of the shifting populations, the annual gap between government spending and government revenues will reach 0.8 percentage points, equaling roughly 9 billion shekels ($2.3 billion), and as a result Israel’s debt will start to hike.

While Israel’s national debt has been shrinking and is now at 67% of the GDP, that trend will reverse around 2030 according to the projection, and by 2059 it will reach 88% – still a far cry from economically floundering states such as Greece, which is at 175%.

However, Geva found that if Israel doesn’t succeed in raising the retirement age of men and women to 69, the 0.8-point gap could actually be as high as 2.4 points equaling 25 billion (almost $6.5 billion) by 2059, raising Israel’s debt-to-GDP up to 135%.

In the case that Israel fails in bringing more haerdim and Arabs into the work force, it would reach a 3.4-point gap every year meaning 35 billion shekels ($9 billion), a scenario in which Israel would likely be at a ratio of over 170% as it was during the financial crisis of 1985.

To counter that crisis the government launched the Economic Stabilization Plan involving budget cuts, price controls and structural reform.

According to Geva, “medium- to long-term fiscal adjustments” possibly including cutting budgets or raising taxes will again be needed to avoid the negative trend.

“Accepting ‘business as usual’ will lead to fiscal bankruptcy in the medium- and long-term, together with a decline in the GDP growth rate and rising inequality,” he warns.

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