The World Bank's Palestinian State

Today the World Bank published a report, 'The Underpinnings of the Future Palestinian State: Sustainable Growth and Institutions' (pdf).

Presuming success on the political track, the Bank's analysts naturally take an institutionalist and economics approach to the prospects of Palestinian statehood. They suggest that the viability of a future Palestinian state hinges on the strength of its institutions and its ability to sustain economic growth. The summary states optimistically:

If the Palestinian Authority (PA) maintains its current performance in institution-building and delivery of public services, it is well-positioned for the establishment of a state at any point in the near future.

However, no matter how well-developed domestic institutions are, external powers can always sabotage their inner workings. This is the central blindspot of two-state solution advocates. They fail to provide an explanation of how a Palestinian state would assure its own sovereignty.

The main points made by the World Bank's report touch on Palestinian dependence on foreign actors, but the Bank still presumes that a simple agreement, combined with institution-building and sustainable economic growth, is all that is needed for statehood.

The report's main findings, as outlined by the World Bank, are (my comments are in brackets):

• PA spending remained within budget targets and improved collection rates resulted in higher than projected domestic tax revenue.
  
• Progress on major reform initiatives strengthened the PA’s fiscal position (it lists examples).
  
• The West Bank economy continued to grow in the first half of 2010 and the real growth rate, combined with Gaza, is likely to reach the projected 8 percent for the year. It notes that some of the increase in economic activity can be attributed to improved investor confidence and the partial easing of restrictions by the Government of Israel (GoI). The main driver of growth, however, remains external financial assistance.
  
  [In other words, outside funds are what's making the economic success story. This is an artificial growth. This artificiality is central to the optimism of the two-state solution, or the political program of Fayyadism, as named by Thomas Friedman.]
  
• The sobering news is that despite the numbers, sustainable economic growth in the West Bank and Gaza remains absent. Significant changes in the policy environment are still required for increased private investment particularly in the productive sectors, enabling the PA to significantly reduce its dependence on donor aid.
  
• The obstacles facing private investment in the West Bank are manifold and myriad, as many important GoI restrictions remain in place: (a) access to the majority of the territory’s land and water (Area C) is severely curtailed; (b) East Jerusalem -- a lucrative market -- is beyond reach; (c) the ability of investors to enter into Israel and the West Bank is unpredictable; and (d) many raw materials critical to the productive sectors are classified by the GoI as “dual-use” (civilian and military) and their import entails the navigation of complex procedures, generating delays and significantly increasing costs.
  
  [These barriers to private investment, it must also be noted, not only also involve infringements on Palestinian human rights, but are not likely to be resolved by any agreement between Israel and the Palestinians. And if they are, Israel will retain the ability to resurrect the obstacles, the equivalent of an axe over the neck of the Palestinian state. Its government will in effect be as accountable to its Israeli neighbor as it will to its own people and private sector -- a major check on the sovereignty of the state.]
  
• Despite the reliance on foreign aid and reforms, despite its improved fiscal performance and expenditure control within budget ceilings, the PA still faces a shortfall possibly as high as US$300-400 million by year's end.
  
  [The PA's political program is being subsidized externally, which raise questions about control and direction. They also raise question about agency and the legitimacy of any agreement. In whose interests do negotiators ultimately act? It will be a mix of their own, their perception of their people's, while making sure to satisfy the paymasters and political overlords -- a recipe for disaster if there ever was one.]

The World Bank warns that without fundamental policy changes -- such as ending Israel's stronghold over the Palestinians (which went unnamed by the Bank) -- the PA will remain donor dependent and its institutions, no matter how robust, will not be able to underpin a viable state.

While it is correct to cite policies and practices as central, missing from this discussion is the problem of power and domination. In this sense, the World Bank's prescription is a de-politicized one. As with the famous joke of an economist assuming he has a can opener when asked how he would open a found can of food on a desert island, the World Bank assumes too much self-containment in Palestinian society. Taking Palestinian institutions and governance in isolation of the geo-political context is a deeply limited framework.

The World Bank's illusion is that a Palestinian state could ever be self-sufficient and free from fundamental external control and infiltration. Given the asymmetries between Israel and the Palestinians, the history of displacement and occupation, and Israel's on-going interests in keeping a Palestinian state de-militarized, weak and economically independent, how can a viable state be treated as a realistic outcome, or as an organizing concept for discussions of economics?

Sadly, it takes more than a vibrant business elite, construction, and good governance to make a state. It often needs minimal outside interference, something the Palestinians seem even further from in 2010 than they were in 1993.

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