Dear Governor Romney:
Today, in Jerusalem, you compared the Israeli economy to Palestine’s and suggested, by implication, that Palestinians lacked everything from a progressive culture to “the hand of Providence.” You and I were management consultants in Boston. Here are some facts:
The Palestinian Authority gets about $2 billion from donor countries a year, a large portion of it paying teachers and police but some of it wasted on patronage jobs; a part of what has stifled entrepreneurship, it is true, is a culture of dependency and old Fatah cadres running monopolies from cement to petroleum. By the way, Israel started off with Labor Party and Histadrut patronage, and dependency on international donors, too, but never mind.
Anyway, public sector salaries in Palestine, along with remittances from family members working abroad, at least wind up in bank deposits. About $8 billion in total deposits are available for investment in genuinely competitive ventures. At least twice that amount is in Palestinian-controlled banks in Jordan. Regional investors know Palestinians are relatively well educated and need one of everything.
Palestine therefore desperately needs to expand its private sector, which you should encourage. But it cannot. Palestinian banks have been unable to lend more than about $3 billion to credit-worthy business plans. For when you look at all of the things an ordinary businessperson takes for granted—mobility, access to markets, talent, suppliers and financial services—you see the frustrating effects of an occupation designed to advance the settlers, not Palestinian development.
Problems of mobility are most widely reported: over 60 percent of land in the West Bank is so-called Area C—controlled by the Israeli army to secure Israeli settlements, but turning Palestinian cities into economic islands. Try growing a supermarket chain when your just-in-time logistics system has to deal with 600 roadblocks; try planning meetings to open a new store. The drive from Ramallah to Jerusalem should take about 12 minutes, but with the checkpoints, it's normally an hour, and that's if you have permission. A Palestinian businessman routinely waits a half day just to collect an Israeli permit to enter Jerusalem and begin the journey. The World Bank estimates that, in spite of a projected 6-7 percent growth, per capita GDP is falling and unemployment may be as high 20 percent.
Rawabi, a new, billion dollar planned town is going up between Ramallah and Nablus. The construction, which is financed almost entirely by Palestinian entrepreneurs and Qatari investors, was held up for more than a year because the Israeli government refused to provide an access road for heavy equipment through “Area C.”
But other problems are just as serious. Businesses need world-class managers, who have to be able to travel freely. Entrepreneurs from the Palestinian diaspora, if born abroad, have to fight for years to get residency permits. The handful who succeed cannot then use Ben Gurion Airport or come to Jerusalem, but suffer the same restrictions as locals. Components for Palestinian manufacturing are routinely held up in Israel ports, waiting for long security checks. (One Palestinian aluminum window manufacturer, denied a coating material that could be used to make explosives, offered to pay for IDF soldiers to supervise the entire process.)
Palestinian banks cannot park their cash reserves in Israeli banks, losing tens of millions of dollars in interest. They also cannot set up branches or even ATMs in East Jerusalem, where unemployment is over 25 percent and 50 percent live under the poverty line.
I visited Ramallah's $350 million Palestinian cell phone company, Jawwal, now facing real competition from the PIF-funded Wataniya. The CEO, Ammar Aker, took me to the roof of his modern building and showed me what he sees. On one hill to the north is a settlement in Area C brandishing the tower of an Israeli operator, Cellcom. To the south is another settlement with another tower. Cellcom gets about 10.5 megahertz of spectrum; Jawwal about 4.8 (spectrum, too, is a "security" asset). To get 3G and continuous coverage—what every Palestinian entrepreneur needs—you need to add a plan from an Israeli carrier.
Prime Minister Netanyahu has been bragging about Palestine's growth. But under current conditions, the resilience of its private sector seems a little short of heroic. Surely, he knows there are things that must be done now. Israel should be inviting, not prohibiting, Palestinian entrepreneurs to come to the West Bank to invest. It should be greatly expanding the number of permits for businesspeople to come to Jerusalem. It should be allowing banks to operate here, thus stopping the city's brain drain to Amman and Dubai. It should be assigning security forces to work with PA forces to expedite Palestinian supply chains. It should be authorizing the development of a secure, north-south transportation corridor linking Palestinian cities.
Providence needs help sometimes, it seems. But you didn’t really come to Jerusalem to learn, did you?
Some parts of this piece were drawn from the author’s ‘The Real Hope of Economic Peace’ originally published in Foreign Policy.