Letters From a Young Contrarian

Economics Over Easy

For $50,000 per head, guests at the King David Hotel on Monday morning received a menu which included croissants, coffee, various cheeses, eggs, salad and shakshuka. On the side, attendees at this fundraising breakfast were treated to a joint economics and social studies lecture from Mitt Romney on the “dramatic, stark difference in economic vitality” between Israel and the Palestinian Territories. “Culture makes all the difference” Romney said, citing David Landes’ findings in The Wealth and Poverty of Nations as his inspiration for such a conclusion.

Landes’ work, oft-cited by Romney, argues that beginning with the United Kingdom, nations which have become wealthy and prosperous have done so because their national cultures were and are amongst other things capitalistic, meritocratic, technocratic and science-orientated. By extension, countries that have experienced stunted development have failed to integrate these qualities into their own cultures. It is Landes’ assertion, for example, that Islam has discouraged diversity, initiative, and education in the countries where it is the predominant religion under authoritarian, oil-rich regimes.

Within the context of the Israeli-Palestinian dynamic, Romney’s emphasis on Landes’ shambling and sweeping conclusions regarding national culture could not be less helpful or enlightening. Rather, the present disparity – where the GDP per capita in Israel is $31,400 compared to $2,900 in the West Bank – is directly attributable to the ongoing politico-military conflict and the influential role of governments and institutions, of the political culture.

Necessary to a prosperous economy are respect for private property, the rule of law, good governance, and freedom of labour, capital, trade, and services. These values are essential to the accomplishments of the European Union, the United States, and the so-called “tiger economies” of the Pacific Rim, and are used by the Heritage Foundation to evaluate nations and rank them on their Index of Economic Freedom. To this list, it would be sensible to add a manageable regulatory framework which prevents monopolies, roots out suspect trading practices, and prevents social harm when economic mistakes occur.

Israel’s economic success is grounded in these very values. Its global competitiveness as a hub for trade and modern industry is “anchored in strong protection of property rights and relatively low levels of corruption”, the Heritage Foundation asserts. It has “an overall regulatory framework promotes efficient entrepreneurial activity” and an investment regime that is “modern and efficient, supporting vibrant levels of foreign investment”. As a small state with a well-educated population and a vibrant private sector, particularly in computer technology and biotechnology, Israel has, as Zbigniew Brzezinski once termed it, the potential to be the Singapore of the Middle East.

Continued Palestinian misfortune, economically speaking, is due to the noticeable absence of these principles. The Palestinian National Authority has since its inception been only partially democratic and somewhat corrupt, particularly during the chairmanship of Yasser Arafat who used public money to maintain a secret portfolio of assets worth between $1-3 billion. The PA’s neopatrimonial system of governance in part explains why Ramallah is experiencing record levels of GDP growth while in other parts of Areas A and B under full or partial Palestinian control, nomads roam the Judean Hills living in wretched poverty.

But it is also vital to assert that it very difficult for the PA to build up the institutions of state and shepherd their economy when the West Bank is occupied and subject to martial law. How, for example, are the Palestinians supposed to encourage free movement of labour and goods when the PA has no control over its borders and the Civil Administration restricts travel via a succession of checkpoints both into Israel proper and around the West Bank? How are the Palestinians supposed to maintain a respect for private property when their land can be squatted on by settlers or seized for use by the military and their homes demolished? Small wonder, then, that the PA has become entirely dependent upon foreign benevolence for sustenance.

But Romney did not discuss any of this, not even to mention why it might be legitimate for Israel to implement security restrictions in the occupied territories. What he said exactly at the time was, “As I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognise the power of at least culture and a few other things”. He would have done well to have set aside the imprecise term, ‘culture’, and discussed those ‘few other things’ that stymie growth in the West Bank, to have used the term occupation, even if those who came to hear him speak might have choked on their shakshuka at his frankness.

It is not the case that Romney’s statement was racist, as Saeb Erekat quickly took to the airwaves to proclaim. Rather, in its brevity and sweeping tenor, it was stupid, ill-considered, and ignorant, shockingly so on all three counts. As an assessment of economic inequality in a tinderbox region, Romney’s words were simply inexcusable.