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After Tunisia and Egypt: Palestinian Neoliberalism at the Cross-roads

[Salam Fayyad and Tzipi Livni at the World Economic Forum in 2010. Image from unknown archive.] [Salam Fayyad and Tzipi Livni at the World Economic Forum in 2010. Image from unknown archive.]

A spectre is haunting the Middle East – the spectre of popular revolts against autocratic governments. Listening to the loud chants from demonstrators in Algiers to Sana’a asserting their political and economic demands, it is clear that exorcising this spectre needs more than just political regime change: they are demanding the change of the system that has produced poverty, unemployment and vast income disparities. These phenomena did not occur spontaneously or as a natural stage of development. Rather, they are among the outcomes of an economic policy model widely adopted in the region over the past decades and shaped by the neoliberal Washington Consensus advocated by the Bretton Woods Institutions (BWI), the International Monetary Fund and the World Bank.

Curiously however, just at the moment when neoliberalism is being rejected by widening popular movements in the region and by developments elsewhere in the global economy, the Palestinian Authority (PA) is stepping up its neoliberal state-building program entitled ‘Ending the Occupation, Establishing the State’. The program was launched by PA Prime Minister Salam Fayyad in 2009 amidst unprecedented internecine political divisions and a historic crisis of legitimacy, indeed survival, of the national liberation movement. While it promises to build ‘good governance’ institutions to garner local and international support for the PA’s statehood plan, a more critical reading reveals that the PA has embarked on a path that seems to be trading off national liberation for neoliberalism.

It should be recalled that when the Palestinian national liberation movement emerged in the early 1960s, its primary goal was to liberate the land and the people from Zionist settler colonialism. At its inception, it was an integral part of a broader anti-colonial struggle and the establishment of a just world order. Once in power, however, most of the movements associated with these struggles failed to deliver on their promises, instead allowing neocolonial relations of production and exchange to bolster their own power and secure privileges for the national bourgeoisie and the ‘international investor.’

More recently, the dynamics of such relations have been complemented by the irresistible ‘logic’ of neoliberalism and globalization—striking examples being the African National Congress’s embrace of neoliberalism and the neoliberal ‘shock therapy’ and rise of an oligarchy’ in countries of the former Soviet Union and bloc. Then as now, neocolonialism and neoliberalization followed formal independence or decolonization, and it is on this basis that the Palestinian statehood program represents a farcical idea since it is framed as achieving statehood through neoliberal institution-building under occupation and, therefore, redefines the Palestinian liberation struggle as it has been hitherto known.

Regionally as well as globally, the hegemony exerted by neoliberalism is inextricably linked with U.S. economic and political interests and the BWI, which it dominates. In the Middle East, the embrace of neoliberal policies by governments and their elites started in the early 1990s, primarily by North African states, as what they were told would act as an antidote to their failed ‘socialist’ or statist development strategies. These were already being retracted ever since Sadat’s ‘infitah’ policy set the tune in the late 1970s. Egypt, and especially Tunisia, were until recently hailed as ‘top reformers’ by BWI for the speed and depth with which they have implemented neoliberal reforms. In Jordan, the neoliberal agenda was launched with the signing of the Israeli-Jordanian peace treaty. More often than not, countries that have implemented neoliberal reforms have experienced rising rates of poverty and unemployment. In most of these countries, this has been accompanied by the rise of a new social class whose fortunes are directly linked to the privatization of state enterprises and liberalization of the economy. More recently, the extreme neoliberal policies imposed during the US occupation of Iraq, from the removal of foreign ownership restrictions and widescale privatization to a 5 percent, uniform tariff regime and some of the lowest taxes in the world, has been aptly described as “state-building in reverse.”

The PA’s neoliberal turn thus has to be understood in the context of longstanding efforts to reconfigure Middle Eastern states, their economies, and the region as a whole. It comes in response to the U.S.-sponsored attempt to prop up a ‘moderate’, more pliable, Palestinian leadership, integrate Israel in the wider region, and manage (not resolve) the conflict. Attempts to make the PA embrace neoliberalism existed even before its creation in 1994, in the context of the BWI role and emerging neoliberal thought in the ‘regional economic development working group’ of the pre-Oslo Madrid multilateral negotiations, in which the PLO participated. By 1993, Harvard economists and the World Bank[1], in association with several Palestinian economists, had entered the arena. They recommended a fairly neoliberal set of economic policies for guiding the PA through what was still seen as a five-year transition to independence.In 1999, the Council on Foreign Relations (also with Palestinian expert collaboration) argued that the implementation of good governance reforms, rule of law, and policies ensuring a conducive climate for investment were necessary preconditions for Palestinian independence.

In line with the policy pedigree of its main architects, [2] the PA statehood program is replete with the seductive terminology of neoliberalism: plurality, accountability, equal opportunity, the empowerment of ‘citizens’, the protection of social, economic, and political rights, and the state’s efficient provision of services and public goods, Not unsurprisingly, alongside the ‘calm’ of the past five years this has exerted a powerful appeal to the Palestinian middle class and beyond. The program, as well as the 2008 Palestinian Reform and Development Plan (PRDP) it incorporates, rests on four interdependent and mutually reinforcing components: building good governance institutions that emulate the neoliberal blueprint, private sector growth as well as effective service delivery and policing of the Palestinian population.

As reflected in the embrace of the security-development nexus by all involved parties, and an allocation of $228 million to the Security Sector Reform and Transformation Program (SSRT) at the Paris Donor Conference in 2007, it is undoubtedly the security component that has been elevated to a vanguard role in achieving Palestinian statehood. Linking (Israeli) security to (Palestinian) development, of course, reinforces the power imbalances between Israel and the PA and makes every Israeli ‘concession’ – from removing a checkpoint to allowing Palestinian exports and imports – contingent upon Palestinian security collaboration. Israel’s own assessment of this security collaboration has been very favorable. Its security establishment has praised the ‘professionalism’ of the EU-supported Palestinian police and security units and welcomed the graduation of new men from the US-trained National Security Force battalions under Lieutenant General Keith Dayton.

The new security climate in the West Bank has led to a selective, phased and always reversible easing of some of Israel’s restrictions on Palestinian economic activity and produced – spurred by a significant injection of aid money – a revival of private sector growth. The newly empowered Palestinian capitalist class has been described as a predatory, oligarchic elite whose dominant position has been favored by the PA’s neoliberal program made possible by security collaboration with Israel.

The rise of an economic oligarchy is of course a common phenomenon in neoliberal regimes and it comes as no surprise that they have been targeted in the ongoing wave of Arab mass uprisings. The PA is thus not the first government to have resorted to combining neoliberal reforms with a strong-arm security apparatus--Chile under Pinochet provides a telling example to what has been described ‘authoritarian neoliberalism’ used to implement radical market reforms and open up the economy for foreign capital. Two supporters of the strategy recently noted in the Wall Street Journal that the PA’s security reform efforts are “the sine qua non for economic expansion . . . and a model for the state-building program in general. Such an affirmation not only turns economic development experience on its head, but also sends a disconcerting message about the price of neoliberal economic growth.

In trying to locate ‘real-existing’ Palestinian neoliberalism, the institutional capabilities and limitations of the PA reveal an obvious contradiction. On the one hand, even if the PA would have wanted to pursue an alternative economic strategy, it has relatively little institutional capability to do so. The structural realities of Israel’s occupation, influence of BWI advocacy and tied donor money have contributed to minimal policy space, that is, the freedom to determine economic policies without external constraints being binding. The limited policy space available also means that the PA is deprived of essential policy tools to actually implement the full package of conventional neoliberal policies.

This holds not only for a non-existent monetary or trade policy, but also for the absence of significant public assets to be privatized after the ”divestment” by the PLO of its most strategic financial holdings as advised by the IMF since 2001 when the ‘Palestinian Investment Fund’ was established for this purpose. Moreover, the protection and enforcement of well-defined property rights, another perquisite for an ‘investment-friendly’ climate as conceived by neoliberalism, is also sharply inhibited by the structural realities of Israel’s occupation and ongoing land expropriation. On the other hand, the PA attempts to exploit all available policy space to advance a neoliberal agenda. Remarkably then, the PA statehood plan represents at best little more than a strategy for further implementation of a neoliberal framework into policy areas hitherto off-limits within the configuration of Israel’s occupation.

The available space the PA can most feasibly exploit to pursue the neoliberal agenda lies primarily in the realm of fiscal policies. The PA has committed itself to reduce its budget deficit and aid dependency, which it hopes to realize through a mixture of public sector pay, hiring freeze and as layoffs, as well as the introduction of pre-paid electricity meters to force households to budget their resources even more stringently. The PA expects that the negative impact of such measures will be compensated by a revival of the Palestinian private sector and its increased contribution to job creation. Another prospect for private sector revival consists in the PA-proposed and donor-financed industrial parks near the Israeli border (often in the separation wall seam zone) to circumvent Israeli closure. The PA hopes that such enclave-style industrial parks, which follow the familiar neoliberal model of cross-border development involving international capital and cheap local labor, will contribute to its export-led growth strategy. The realization of continued private sector growth, in turn, depends on the PA’s ability to effectively police the Palestinian people and its workforce in areas under its “jurisdiction”.

Simply stated, because it has no evident strategy for tackling the real ‘external’ obstacles, the PA’s attention has shifted to a range of perceived ‘internal’ obstacles to statehood, and its program is consequently aimed at rooting them out. Seen from this angle, then, the PA statehood program must embed the discourse and practice of neoliberalism in Palestinian society. It is here where the concept of the rule of law, so central in neoliberal rhetoric, proves its instrumental value. Underlying its technical, neutral vocabulary is the desire to escape politics and, indeed, the very political nature of the question of Palestine. The statehood program encourages the perverse idea that citizens may have to acquiesce in occupation but will not be denied the benefits of smoother running traffic, a liberal education curriculum, investor-friendly institutions, efficient public service delivery, and, for the middle class, access to luxury hotel chains and touring theatre performances.

The ‘state’ model envisaged by the PA is precisely of the sort that has wrecked already sovereign economies around the world through neoliberal reforms. Predictably, reforms the PA has already implemented to pursue such a model have earned the stamp of approval by the BWI. Yet, both the World Bank and the IMF have reminded the PA that the reform process must continue even though, as both institutions recognize, numerous obstacles posed by Israel undermine the process at all stages. Conversely however, the PA’s obsessive focus on reform might just serve to make occupation less visible to Palestinians, less costly for Israel and donors and even more efficient in the process.

Certainly, such a focus resonates well with Israel’s offer of ‘economic peace’. The PA has publicly denounced the Israeli concept of economic peace and acknowledged that institution building cannot alone end the occupation. But the neoliberal ‘state’ being built by the PA and its international backers means that it must rely on Israel to facilitate the statehood agenda. To all intents and purposes that adds up to a co-habitation with economic peace, through effective tolerance of, and cooperation with, the occupying power. The Palestinian leadership needs to take a long, hard look at what peoples in the region are demanding. For the Palestinian people at the center of a region undergoing what might yet turn out to be a revolutionary transformation, this means nothing short of a return to fundamental aims: liberating the land and the people – not creating an anomalous neoliberal enclave within Israel's occupation. 

This post draws on an article by the authors published this month in Journal of Palestine Studies, Vol. XL, No. 2 (Winter 2011), pp. 1–20, “Neoliberalism as Liberation: The Statehood Program and the Remaking of the Palestinian National Movement”.

The views expressed in this post do not represent those of the United Nations secretariate.

[1] World Bank: “Developing the Occupied Territories: An Investment in Peace” (Washington, DC: The World Bank Group, 1993).

[2] Prime Minister Fayyad and Palestine Investment Fund CEO Mohamad Mustafa are the most senior, enduring, and public faces of PA economic policy making since 2005, and are former IMF and World Bank representatives, respectively, to the PA.
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3 comments for "After Tunisia and Egypt: Palestinian Neoliberalism at the Cross-roads"


Neoliberalism, fiscal policies and economic peace are chimeric subjects in the context of the Palestinian conflict with Israel. The reality is state-sponsored killing and assassination of political opponents by an acknowledged corrupt government. The increasing hatred by bereaved and dispossessed families should be the focus of Palestinian studies, not neoliberalism.

Colin Dale, London UK wrote on March 15, 2011 at 04:00 AM

I had never thought that a government might seek economic stagnation as a deliberate policy choice.

Israel and its sponsors are certainly not the only entities opressing the Palestinian people.

Jan Stewer wrote on March 15, 2011 at 11:04 PM

The people want freedom and jobs. They want individual economic opportunities, do they not? How will you create jobs without investment?

Rooster Cogburn Jr. wrote on June 27, 2011 at 03:57 PM

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