As there has been a good deal of discussion and many would say unwarranted optimism about "Fayyadism", whatever that really means, it's important to look at analytical and scholarly perspectives on the economic situation in the West Bank and the role of the government in developing institutions.
Fayyad (pictured right here at a previous Palestine Center event
giving
this presentation) was in New York yesterday "
speaking at a meeting with donor nations on the sidelines of the U.N. General Assembly" The AP story reported:
Palestinian Prime Minister Salaam Fayyad is appealing for more international aid, pledging continued reforms and vowing that his government will be ready for statehood "at any point" if additional assistance is forthcoming.
If you read that and thought there was an obvious contradiction between the drive for independence and drive for donor dollar dependence, well, your not alone.
In the spirit of
Will's post earlier today I'll share with you some important insights on the issue of economy and governance relayed by experts here at the Palestine Center over the past year. They are lengthy but in-depth excerpts of presentations which are truly worth reading in their entirety to get a better grasp on the issue as a whole.
Oussama Kanaan is the IMF Chief of Mission and Resident Representative for the West Bank and Gaza. In a
presentation on the Palestinian economy at the Palestine Center earlier this year he stated:
So we have a really gradual moment of normalcy in the West Bank, a situation that is still very difficult in Gaza but overall, an improvement in living standards. Still, it’s important to emphasize that in terms of levels, the level of real GDP per capita, is still well below that which prevailed in 2000. So the growth, if you just talk about the growth story without putting it in context of an economy in which output is well below potential output in which you have a severe under utilization of resources, then it’s very easy to actually confuse this growth with a good health of the economy. The economy is still well below potential in terms of output and the basic needs of a large part of the population are still not covered.
Now in terms of the prospects, there were several articles which actually make it 
appear as if this relaxation of restrictions on internal movement and access is sufficient for the growth that was witnessed last year; about 7 percent to continue over the long term.
And if you look at our own studies, the message is very clear that two things need to happen for that growth to be sustained. First, that is based on the experience of almost all developing countries that have a small domestic market, all economies that have a small domestic market depend on the expansion of the export sector, for a sustainable growth in real GDP per capita. So no economy, according to the data that we have, no economy was able to grow in a sustainable way without its own export sector expanding. So simply by relaxing the restrictions on internal movement you could have, in the short run, an increase in growth just because the existing resources are better utilized. People are able to make better use of labor and capital to produce more output without necessarily actually reducing unemployment or reducing the investment rate. But just because people are able to trade from one city to another, for example, are able to have a normal life, whereby inputs can actually enter the cities and be used in production processes that were highly repressed to start with.
One important condition is the removal of the barriers on exports. First, the barriers on exports of goods and services to Israel have to be removed, this is the first condition. For an economy that does not have a seaport and an airport there is no other alternative, for this year I think, if you want to see a rate of growth that really is in the order of 7 percent. There is no alternative from having those barriers removed. Second, and as much as possible, the access to markets outside of Israel have to be encouraged. That is, we have to find a way in which in addition to access to Israel, exporters could trade with the rest of the world. This is an important element of the current two year plan by Prime Minister Fayyad where he is actually aiming at having a seaport, a functioning seaport [and] a functioning airport. Perhaps, this could not realistically be done this year but at least as an objective to be presented and to emphasize the importance of having an export market other than Israel.
Second, this is something that I think is not well understood by most people, 60 percent of the land of the West Bank cannot be used economically without permission of the Israeli authorities. That is the area, Area C. So 60 percent of the land is out of bounds for the private sector. I think if we want to see sustainable growth then it is important for that constraint to be removed. In Gaza – the blockade itself, the persistence of the blockade, even in its current intensity where some basic goods can enter, but still for such a small economy, if you want to consider the economy of Gaza as a sort of sub economy of a bigger Palestinian economy – you cannot have growth even in the order of 3, 4 percent in the long run if it remains under such tight constraints."
Another sobering analysis was
presented at the Palestine Center by the then outgoing
Palestinian Authority Minister of National Economy Bassem Khoury:
It is really amazing that although we received in 2008 two billion dollars in aid, direct aid, to our budget plus another one billion in aid in different forms; different NGO’s, UNRWA what have you. So you’re speaking of 800 dollars per capita that is 75 percent of our per capita was given in one year in aid to Palestine. Yet, in reality, per capita income declined in 2008. Why? In the West Bank we had growth of 7 percent. In Gaza we had minus 10 percent. The average was plus 2 percent. But population growth was around 3 percent so per capita income actually dropped. And to add insult to injury, our inflation rate was almost 10 percent. So in reality, Palestinians saw a worsening of their lives of almost 11 percent at a time [when] we received three billion U.S. dollars worth of aid. It’s a very big problem because this aid is there and we’re not able to benefit from it for a simple fact [that] we are unable to jump-start the Palestinian productive base and jump-start the private sector.
If you look at the figures, our productive base in 2008 was minus 32 percent of what it was in the year 2000 at a time when the population grew by 26 percent. So basically, we had a drop in our per capita production of almost 50 percent. This is why we were not able to benefit from the three billion dollars worth of aid. Basically, we get that money, the government spends it on salaries, on other running expenses. And what [do] we do with that? We buy with it goods and services mainly from Israel and from China. So this money in reality is there supporting more, unfortunately, the Israeli and Chinese economies than supporting the Palestinian economy.
Yazid Sayigh, a scholar of Palestinian politics and institutions, also had this to say about the economy and stability
at a presentation this spring:
In the economy, here too there has been important 
stabilization of the situation in the West Bank, where the overall economy has grown modestly in 2008, more in 2009. And where the Israelis have reduced the amount of checkpoints and barriers within the West Bank sufficiently that it actually is now possible to move quite easily from Ramallah to Nablus or around to Bethlehem and further south in ways that were almost impossible about a year before. This has made a difference. But at the end of the day, the barriers have not disappeared and a lot of the internal closures are still in place.
More fundamentally, what I think is important here, is that the growth figure as a simple statistic, I think it was anticipated to be 7 percent. It’s more like 5 percent in reality. This is owed almost entirely to donor funding through the Palestinian Authority and public expenditure, not through private sector regeneration and growth. I think that is a very telling issue.
Banks in Palestine sit on about 7 billion dollars in assets. In other words, there is money there is not getting lent out because the private sector doesn’t have the assurance or the confidence that the investment will be returned. That it won’t be lost. So they are reluctant to borrow and the banks sit on that money. In other words, there are still very important structural obstacles in the West Bank to genuine economic development and growth which is, of course, the linchpin of donor strategy: improve economic conditions and the rest will follow. That didn’t work in the 90’s. It didn’t work after 2000 and it’s still not working. So there is stabilization but not genuine change.
Nathan Brown, of George Washington University and the Carnegie Endowment,
discussed how economic support of the West Bank government is part of a policy that prolongs division between Palestinian parties:
Since June 2007, since the West Bank and Gaza split, American policy has been West Bank first, as Yousef was reporting at the beginning, essentially, figuring that the divergence in policy performance between the West Bank and the Gaza governments would solve the problem. That allowing some kind of level of security improvements, economic development and/or diplomatic process and the mix of those varies a little bit on the West Bank, and squeezing Gaza hard would make Palestinians come to their senses. That had essentially been American policy. Some of the mechanics of how this was supposed to happen, that is to say that if a Palestinian in Gaza thinks, “Gosh, this government is really bad in Gaza. Let’s get rid of it.”
How are they supposed to do this? I think that question was postponed. “Well, tomorrow will be another day.” There’ll be something that’ll make it clear or they’ll be elections and Hamas would be forced to run on a record of poor policy performance forgetting that the split made elections impossible. A new round of elections would not be possible unless there were some West Bank and Gaza reconciliation.
I should also note that Nathan Brown wrote
this related and important piece last week.
So I think that the take away, in short, is that Palestinians don't need constant subsidization of their economy by foreign donor dollars. What they need is the independence to realize their tremendous potential. It's a bit absurd that Palestinians are challenged by Israel and the West to "build the necessary institutions for statehood" as if the Palestinians need to prove they are deserving, worthy or prepared for a state, after they were indispensable partners in building Amman and your pick of Arab states in the Gulf.
Instead, what we are seeing in the Palestinian economy, particularly in the West Bank, is the cementing of a system of perpetual dependence on foreign actors and in turn, a foreign policy making elite whose independence has been severely compromised by this very economic system.
giving this presentation) was in New York yesterday "speaking at a meeting with donor nations on the sidelines of the U.N. General Assembly" The AP story reported:
Yousef Munayyer, the executive director of the Palestine Center and the Jerusalem Fund, appeared on Al Jazeera English on September 1st, 2010. 
The panelists included:
Yousef Munayyer
Each month, we will be conducting a review of a recent book that deals with issues relating to Palestine and/or the Israel/Palestine conflict. Books that are chosen for review can be academic or non-academic, historical or fictional. Next month we will be reviewing Palestinian and Israeli Public Opinion: The Public Imperative in the Second Intifada by Jacob Shamir and Khalil Shikaki. If you would like to suggest a book for review, please contact the Palestine Center.
Palestine Center Brief No. 197 (21 April 2010) By Yousef Munayyer 
By Yousef Munayyer
From 'The Arena' on Politico. 
Each month, we will be conducting a review of a recent book that deals with issues relating to Palestine and/or the Israel/Palestine conflict. Books that are chosen for review can be academic or non-academic, historical or fictional. Next month we will be reviewing Palestinian Politics After Arafat: A Failed National Movement by As'ad Ghanem. If you would like to suggest a book for review, please contact the Palestine Center.
