ECONOMICS

ECONOMICS THE ECONOMICS OF OCCUPATION Enforced Poverty in the West Bank and Gaza By Robert Weissman JERUSALEM--Based on their representatives' performance at the Madrid peace conference, Palestinians have suddenly been rehabilitated in the eyes of the U.S. and much of the rest of the world's media. But, although this may have long-term benefits, the vast majority of Palestinians in the Occupied Territories are facing immediate economic problems that an improved world image does not begin to address. The Palestinian economy, which deteriorated steadily during the first three years of the intifada, or uprising, has suffered tremendously since Iraq's invasion of Kuwait in August 1990. The Occupied Territories are "an economic disaster zone," says Sateb Irakat, a political scientist at Al Najah University in the West Bank. With 80 percent of the population living below the poverty line and unemployment rates ranging from 30 to 65 percent, depending on the region, "we [practically] don't have an economy anymore," Irakat says. "We don't need economists, we need magicians." Forced dependency Since Israel occupied the territories in 1967, Israeli authorities have sought to limit economic development in the West Bank and Gaza, make them economically dependent on Israel and force the Palestinian workforce to become a source of cheap labor for Israeli business. As an occupying power, Israel has maintained tight control over the uses of land and water. It has required Palestinians to obtain permits for digging new wells, for example, and not a single new Palestinian irrigation well has been approved since the occupation. Israeli land seizures have continued throughout the occupation, with Israeli settlers and the military now controlling more than half of the land in the West Bank and Gaza. Palestinians have been steadily, and literally, losing ground. Israel has refused to allow Palestinian businesses to compete with Israeli enterprises. A June 1991 seminar of economists and business people convened by the Coordinating Committee of Non- Governmental Organizations (CCINGO) in Jerusalem concluded that "the major impediments [to development in the Occupied Territories] are those imposed by a military regime determined to protect its own commercial interests at the expense of Palestinian growth." Participants pointed to punitive tax policies, bureaucratic delays, inaccessibility of basic communications facilities, including telephones, and a bewildering array of required permits as some among many problems facing Palestinian entrepreneurs. By ensuring that few jobs will be available in the Occupied Territories, Israeli policy has given Palestinians little choice but to seek work in Israel, where they have been segregated in low-paying jobs. Although Palestinians formally need permits to work within Israel's borders, from 1971 until the beginning of the intifada in 1987 that requirement was not enforced. Palestinians have constituted a cheap source of labor for the agricultural, service and construction industries, and, says Maher Nasser of the United Nations Relief and Works Agency (UNRWA), allowing Palestinians to work within Israel diluted opposition to the occupation by giving young men something to do and making possible some economic improvement. Those Palestinians who have found work in Israel have been subjected to discriminatory treatment. Chana Safran of Kav La' oved (Workers' Hotline), a Tel Aviv-based organization which seeks to protect the rights of Palestinian workers in Israel, reports that these workers pay a higher tax rate than Israeli workers, receive fewer benefits, are often subjected to harassment and are not defended by the Histradut labor federation--even though 1 percent of their wages are paid to Histradut. Nonetheless, these workers' income has been a vital component of the Palestinian economy. Resistance and repression The Palestinian economy entered a new phase with the eruption of the intifada in December 1987. Palestinians sought to disengage from the Israeli economy, holding strikes, boycotting Israeli goods and trying to create an autonomous economy. Israel responded with harsh repression designed to destroy economic self-sufficiency efforts. The result was a substantial decline in the Palestinian standard of living, exacerbated at the end of 1988 by the devaluation of the Jordanian dinar, the currency most widely used in the territories. A number of factors contributed to the decline: The daily afternoon strikes called by the Unified National Leadership of the Uprising took a huge toll on all aspects of the economy within the territories. The combination of the uprising and the military response damaged the tourist industry, which had been a major contributor to the Palestinian economy, bringing in $90 million a year. Many of the Israeli military's punishments have had economic ramifications. Most notable have been 24-hour curfews imposed on towns, villages and refugee camps. According to "No Exit: Israel's Curfew Policy in the Occupied Palestinian Territories," a June 1991 report of the Jerusalem Media and Communications Center (JMCC), from the beginning of the intifada through the end of 1990, "every Palestinian living in the Occupied Territories had spent an average of approximately 10 weeks under in-house curfew." JMCC tabulated over 7,800 curfews imposed by the Israeli military through December 1990. Curfews have led to a direct loss of income by preventing those with jobs from going to work. Additionally, curfews, along with frequent strikes, have caused a high rate of Palestinian worker absenteeism, frustrating Israeli employers, who have become less willing to hire Palestinians. The position of Palestinian workers in Israel worsened with the influx of Soviet Jewish immigrants. Some employers began to turn to Soviets to fill some of the jobs traditionally held by Palestinians. In October 1990, hawkish Israeli Housing Minister Ariel Sharon, reiterating prior calls, urged that the number of Palestinian workers in Israel should be dramatically reduced, recommending that employers fill their jobs by hiring Soviet immigrants. Palestinian efforts to compensate for the costs of protest by relying on locally made products were crushed by Israel. Military responses, such as curfews, interfered with development efforts, and Israeli authorities relied on the regulatory apparatus--denying various licenses and imposing high taxes, for example--to further stifle development projects. War-time economics Entering the Gulf crisis period in a precarious position, the Palestinian economy was not equipped to handle the major setbacks it would soon encounter. First, with the Iraqi invasion of Kuwait, came the loss of remittances from Palestinians working in Kuwait. Four hundred thousand Palestinians lived and worked in Kuwait, where the economy depended heavily on foreign labor. Before the crisis, Palestinians working overseas, primarily in Kuwait but also in other countries, including Iraq, sent approximately $400 million to the Occupied Territories each year, one-fifth of the West Bank and Gaza's $2 billion economy. Remittances from Kuwait stopped with the invasion. After the war, Kuwait expelled tens of thousands of Palestinians, even though most analysts-- including those of the Kuwaiti government--believe only 10 percent collaborated with the Iraqi invaders. Remittances have now fallen to a level of only $100 million a year, according to the UNRWA's Nasser. Palestinians returning to the territories from Kuwait after the war have added another burden to the economy, since they are not likely to find work. Second, the Gulf states which supported the war against Iraq cut off aid to the Occupied Territories. While there is some dispute about how much aid actually reached the territories before the war and how useful it was, some sources say the cutoff will cost the Palestinian economy more than $100 million annually. The third war-related blow to the economy was the Israeli- imposed, war-time curfew on the West Bank and Gaza. From January 17 to the second or third week of February (depending on the area), Palestinians in the Occupied Territories were confined to their houses 24 hours a day, with reprieves of only a few hours every three days to a week to allow residents to replenish their supplies. From mid-February to early March, the Israeli military allowed 8-to-12-hour reprieves in selected areas, though they continued to closely monitor and tightly regulate Palestinian movements. Some Palestinians were able to return to jobs in Israel during this period, though only if they could obtain passes from the Israeli authorities. The curfew was gradually rolled back in March, with the last blanket curfew lifted on March 24. As it lifted the curfew, however, the Israeli military implemented an elaborate pass system, regulating movement within the Occupied Territories and between the territories and Israel. The cumulative effect of the curfew was completely devastating to the economy. During the first weeks of the curfew, industry in the Occupied Territories was almost totally shut down. Except for 32 food and pharmaceutical factories, which were allowed to operate in the second and third weeks, all of the 4,200 industrial enterprises in the Occupied Territories were closed through the third week of the curfew, according to the Palestinian Economic Planning and Coordinating Committee (PEPCC). PEPCC estimates that 93 to 95 percent of all industrial production was lost in the first month of the curfew. Wages lost by Palestinian workers in both the territories and Israel amounted to between $56 and $65 million in the first month of the curfew, according to CCINGO. UNRWA estimates lost wages among Gazans from January to March to be $47.6 million. Because most families in the Occupied Territories have little or no savings and rely on incoming wages to provide for their basic needs, these losses imperiled many Palestinians' existence. The curfew also shut down the agricultural sector in the Occupied Territories. Most farmers could not return to their fields on a regular basis until mid-March, by which time "irretrievable damage to crops and livestock had occurred," according to the JMCC's report "No Exit." Farmers were unable to harvest ripe crops, which rotted in the fields, unable to tend to planted fields and unable to properly prepare for the next season, with much of the land normally prepared in the winter months left fallow. Livestock farmers could not graze their animals, resulting in animal weight loss and increased dependence on feed imported from Israel. "No Exit" cites statistics which place the overall loss to the agricultural sector at between $5 and $20 million in the first month of the curfew, with additional losses experienced in the next month and in the longer term. As the war ended and the curfew was gradually lifted, Israel stepped up its economic pressure on the Palestinians. Land seizures by the Israeli military accelerated, so that the military and Israeli settlers now control more than two-thirds of the land in the Occupied Territories. Israeli employers, prompted by government exhortations, dismissed thousands of Palestinians after the war, with many denied the severance pay to which they were entitled, according to the Workers' Hotline. The Israeli authorities also rescinded the old laissez-faire policy which enabled Palestinians to work inside Israel without permits, with the government now penalizing employers who use unlicensed workers. Work permits are not easily acquired, however, since Israel grants them only to Palestinians who receive a security clearance and who have paid their taxes. The authorities will only issue permits for specific jobs, preventing Palestinians from working as day laborers, which they often did before the war. A bleak future By almost any measure, the prognosis for the Palestinian economy is extremely bleak. Israel is now loosening the ties that have linked the Palestinian economy to the Israeli market in a subordinate role over the last two decades, even as it has undermined the basis for an independent Palestinian economy and as many other supporting pillars of the economy--such as remittances and tourism--have been weakened. In May 1991, under international pressure, Israel announced a new policy of encouraging industry within the Occupied Territories. Later, Israeli Defense Minister Moshe Arens stated that he would "help Palestinians find new markets for their agricultural goods" and "make life easier for Palestinian businessmen." Israeli Brig.-Gen. Gad Zohar announced in November that new businesses in the territories would be exempt from taxes for their first three profitable years and that Israel would build infrastructure for new factories. Palestinian activists, however, do not believe the Israeli proposals will significantly affect the economy. Too many restrictions--such as limited access to the Israeli market--remain, they argue. In fact, many contend that until Palestinian development is free to proceed without interference from Israel, reforms like those proposed by Israel or international aid might actually strengthen the dependent nature of the Palestinian economy. Unfortunately, as long as Israel maintains political and military dominance over the Occupied Territories, the Palestinian economy is likely to remain stunted. As a result, the Palestinian standard of living is likely to remain artificially--and tragically--low for the foreseeable future.

CONQUERING THE EAST By Jim Ridgeway Jim Ridgeway is a columnist for the Village Voice. BUDAPEST--For the businessmen in their Mercedes now hurtling down the autobahns of Central and Eastern Europe, the East is the last great market left in the world. And for the Germans, who already are the dominant force here, its conquest promises to give them the power they could not achieve in two world wars. The true enormity of the economic difficulties facing Central and Eastern Europe are only now coming into focus. And while there can be little doubt that this region will soon become an economic province of Germany, its economic well-being will require what amounts to a reinvention of the cohesion that marked the old Austro-Hungarian empire. Corporations are looking first to the revival of the economy in the Czech and Slovak Federal Republic, with its highly skilled workforce and finishing industries that need far less retooling than those elsewhere. Their eyes will next turn to Hungary, with its robust, competitive agricultural economy and a stream of new bootstrap service-based industries. As for the Slovakia part of old Czechoslovakia, businessmen wish it and its Stalinist heavy industry would drop off the face of the earth. They have some hope for Poland, although that country seems forever trapped by determinist forces, whether it be Stalin or the Pope. Inferior infrastructure The infrastructure of much of Eastern Europe predates World War II, and imperils both human health and economic productivity. The sanitation systems are outmoded. Bratislava, for example, has a refinery virtually in the middle of the city, and the communists who built it there in order to make Slovakia the center of a plastics and chemical industry cheerfully paid the fines for violating the country's anti-pollution laws rather than cleaning up or halting the emissions. As a result, the children of Bratislava are literally all sick with bronchial infections, prompting the government to decree that each child may spend two to three weeks in the countryside. The phone systems are impossible. While there are some efforts to bypass existing antiquated machinery by skipping a technological generation and installing cellular phones, cities like Prague are not likely to have a decent functioning phone system for at least 10 to 15 years. Few people even have access to the poor system that is currently in place. In Budapest, 39 percent of the households have phones. Outside the capital, however, only 10 percent of the population is served by a phone system. The waiting period to get a phone is 12 years. The most fundamental infrastructure problem is energy. While the countries of the Eastern bloc have no oil and little natural gas production, the Soviet Union is the largest producer of oil and gas in the world, and ought to have provided a modern energy base for the Eastern bloc. But instead of shipping natural gas to Central Europe, the Soviets sold the gas for hard currency to the West Germans, leaving East Germany, Czechoslovakia, Hungary, Poland and the rest of the East ever more dependent on burning dirty, energy-inefficient brown coal to produce electricity. This created a blanket of deadly chemical smog over the forests and cities of central Europe, which, when the wind blew, drifted back across the Ukraine, Byelorussia and Russia. Even worse, the Eastern bloc countries constructed rickety nuclear power plants which are just waiting to blow up like Chernobyl did. Today, little has changed. Environmentalists and ecologically minded legislators in Eastern European countries are struggling to dismantle or make safe nuclear power plants, searching for ways of burning lignite more cleanly and efficiently, talking wildly of schemes for alternative energy and attempting to persuade their governments to adopt the kinds of energy conservation programs that U.S. environmentalists first urged on President Carter in the 1970s and now are demanding of President Bush. Oil still comes from Russia, although at higher prices. High in sulphur content and vanadium, it poses serious toxic threats to the population, especially children. The former East bloc countries are reluctant to maintain any energy dependence on the Soviet Union, though there does not appear to be any long-term alternative. There seems to be little doubt that they will be buying oil and gas, and conceivably importing electricity, from Russia and the Ukraine. Eastern Europe can no longer rely on oil supplies piped from the Middle East up through the Adriatic, since they have been cut off by the civil war in Yugoslavia. Even if these pipelines were reliable, they would have to be expanded greatly to be sufficient to serve the region. Water engineers hold on to the great illusion of generating inexpensive, clean power from dams on the Danube. But the Stalinist dam projects on the Danube would produce barely enough electricity to run the water treatment and other facilities required to protect the nearby populace from the side effects of the dam, such as poisoned underground aquifers. Misty-eyed Czech planners talk enthusiastically about coal liquefaction and gasification, although similar projects in other parts of the world have always been expensive and technologically dubious. (One need only remember the hype surrounding coal gasification during the Carter years, when U.S. experts confidently predicted coal could be turned into gas to supplement the supposed dwindling supplies of natural gas if only the price were permitted to rise.) It appears unlikely that the cash-starved countries of Eastern Europe will find the money to pay for coal gasification. One near-term prospect is to convert a pipeline that runs through the former territories of East Germany so that it can carry oil from the North Sea ports into Czechoslovakia. Waiting for privatization But all efforts to create new economic relations in the region hinge on privatization. Here there is remarkably little progress. In the former territories of East Germany, the efforts to sell off the Kombinats and other businesses have been slow and clouded with charges of corruption. Over the past year, the Truehand, the agency charged with overseeing East German privatization, has privatized 4,000 of 10,500 East German businesses, generating some $9 billion in revenues. More than 130 foreign companies--only 17 of which are based in the United States--have acquired 200 formerly East German companies. Unemployment in East Germany is running at 20 percent and is expected to rise to 40 percent by next year. East German labor is paid at 60 percent of the West German scale. There is a great sense of abandonment, betrayal and bitterness on the part of the East Germans towards the communists who promised everything and produced little, and now towards the West German political parties that held out high hopes at the time of unification. In Czechoslovakia, U.S. law firms are pushing the nation towards a system in which former state businesses are turned over to the people, who would be provided stock certificates. But this is a paper exercise, and the exact terms of the transfer are vague. The Czech republic has now delayed the implementation of the voucher plan until February, and the federal government fears the vouchers will not actually be sold until after the parliamentary elections next June. Meanwhile, Swiss and Austrian businessmen sweep across the landscape, taking advantage of small businesses wherever they can. To make it easier to rip off the East Europeans, the Swiss have rewritten their laws so that is possible to deduct bribes as business expenses. In Hungary, capitalist accumulation seems to be moving more quickly since the government largely looks the other way when it comes to collecting taxes on new small business enterprises which operate in a fast and furious cash economy with no records. They, in turn, plow profits back into the new ventures. "Thirty percent of the gross domestic product is in the private sector and most of that in newly formed enterprises, not the old socialist enterprises," according to Peter Rona, former president of the Schroder bank who now runs a closed-end investment company with investments in Hungary. Concluding last year that the Soviet Union was going to collapse, Hungary stepped up exports and aggressively sought markets in the West. As a result, exports last year grew by 25 percent. This year, hard currency exports are expected to grow by 27 percent. "For the Germans the East has to be the future," Rona says. "If there is instability and economic chaos in the East, Germany will bear the brunt of it. The French certainly won't feel it.... Already 80 percent of the foreign investment capital in Poland, Czechoslovakia, Hungary and the European parts of the Soviet Union is German. These investments now total in excess of 90 billion deutchmarks."