Frederic Bastiat, 19th century French economist, predicted, "If goods don't cross borders, troops will." That's precisely the theme of a July 1 Weekly Standard article written by my Israeli colleague Daniel Doron, president of the Jerusalem-based Israel Center for Social and Economic Development, titled, "The Way Forward for the Palestinians: It's Economic Development, Not Peace-processing."
Daniel Doron argues that during the quarter century from the Six Day War to the Oslo Accords, from 1967 to 1993, the political stalemate enabled a quiet peace. Israel maintained a modicum of law and order in Palestinian areas, and the Palestinian economy flourished. The Palestinian GDP quadrupled, standards of living rose, infant mortality fell, and seven new colleges were established. During this time of relative peace, hundreds of thousands of Palestinians worked in Israel. Though, Doron adds, going through security checkpoints was a hassle, once in Israel Palestinians had total freedom of movement.
In the late 1980s, Palestinians opened informal markets on the demarcation lines between Arab and Jewish areas and catered to Israelis who couldn't shop on the Sabbath except in kibbutzim. Arab shopkeepers did all they could to promote peace and good relations with their customers. In these markets, the Palestinians earned an estimated $300 million annually. That's about half of what they receive in foreign aid and one-quarter of their GDP. During this period of relative peace, Palestinians experienced nearly full employment, whereas today unemployment is about 60 percent and their standard of living has fallen by one-half.
The economic development experienced during this period of relative peace did produce some unintended consequences. The prosperity enjoyed by tradesmen, earning four times as much as workers under Jordanian rule, stirred resentment among Arab bureaucratic and intellectual elites. Doron says that "contact between the Arabs' almost medieval ethos of loyalty to location and clan, and the Israelis super-modern, sometimes brazenly liberal ethos, exacerbated the religious and national conflict. Also, Palestinians who attended Israeli universities were indoctrinated by leftist Israeli academics who promoted Palestinian statehood with greater fervor than most Arabs."
Doron concludes that the most important ingredient for conflict reduction is economic development. First, Israel should open its markets to Palestinian products. Israeli farmers unable to compete with Palestinian labor-intensive goods should be encouraged and helped to produce goods for which they have an advantage. Similar arrangements could be worked out in the construction materials, apparel and footwear industries, and other sectors where Arab competition displaced Israeli workers. The Israeli government must cut its high taxes and red tape that hinder Israeli and Arab entrepreneurs alike and discourage joint ventures. Israel must keep its hands off the informal markets that have sprung up on the edges of Palestinian areas, which provide livelihoods and are very popular with Israeli shoppers.
Doron is not naive. He recognizes that national/ethnic conflicts are not amenable to quick fixes. After all, it took Europeans, who had been trying to slaughter one another for centuries, a long time to overcome intractable national and religious conflicts. Economic cooperation and growth went a long way toward European peace (although today's European anti-globalists seem to want an end to goods crossing borders).
Economic development is more arduous and not as glamorous as the political struggle, but it has a proven ability to moderate Arab-Israeli conflict. Western "help," through billions of dollars of foreign aid, goes to bureaucracies that squander or steal it. Unfortunately, that's part of the human tragedy: What's in the interests of the bureaucratic and intellectual elite often works against the interests of the ordinary person attempting to move himself and his family a few steps up the economic ladder.