The high costs of occupation

A new report shows that Israel's conflict with the Palestinians has severely undermined its economy and greatly increased poverty.

By Chris McGreal
Published February 25, 2005 2:49PM (EST)

Israelis are paying a high but rarely acknowledged economic and social cost for nearly 40 years of occupation, says a report commissioned by Oxfam published Friday. The report says that military spending, the cost of Jewish settlements to colonize Palestinian land, and the collapse of tourism and other enterprises because of the two intifadas have severely undermined the economy and greatly increased poverty.

The report by the Adva Center in Tel Aviv, which monitors social and economic trends, concludes that the consequences go deeper, skewing Israeli politics and creating a more divided society. It says: "The second intifada has hurt Israel deeply, resulting in a cessation of economic growth, in a lowering of the standard of living, in the debilitating of its social services, in the dilution of its safety net, and in an increase in the extent and depth of poverty.

"The price ... puts the 37 years of occupation into an entirely new perspective." In addition to costing more than 4,000 lives on the two sides, the occupation has caused more than a decade of political instability, including the collapse of five governments and the assassination of Yitzhak Rabin.

For the first 20 years after Israel seized the West Bank and Gaza Strip in 1967 the cost was relatively low. The occupied territories were controlled by a small number of troops, and the government made minimal investment in the Palestinian areas. Israel benefited from a captive market for its goods and an exploited labor force.

In effect, the government forced Palestinians to subsidize the occupation by taking $250 million in social security contributions while depriving them of benefits such as pensions and child allowances. But Israel did spend billions of pounds building settlements, which the report says impose a huge economic burden in subsidies and defense.

The exact cost is difficult to assess, in part because the Defense Ministry's budget is secret. But since 1987 the government has added $6.5 billion to its regular military expenditure because of "events in the territories."

"This is money that was diverted from the internal social agenda," the report's author, Shlomo Swirski, says. "There are two main costs. One is the straightforward economic cost, especially the loss of GDP through the loss of tourism etc. The other cost is more important, because it is long term. It is the abandonment of the goal of achieving a society where the majority belongs to the middle class."

The cost of the latest intifada has been particularly high. The economy contracted from 8 percent growth in 2000 to nearly 1 percent three years later as foreign investment dropped sharply and tourism collapsed. The health service, social security and education budgets were severely cut.

"Their cumulative effect can probably be compared to the structural changes introduced into eastern European countries in the aftermath of the collapse of the Soviet Union, or to the structural changes imposed by international financial institutions on countries that had undergone severe financial crises."

As unemployment has risen and poverty has widened, many social benefits have been sharply reduced, including a cut of almost a third in income support for the poor and single mothers. "The most tangible outcome has been the mushrooming of soup-kitchens and of 'hand-out' societies, previously unknown in Israel except in the Orthodox Jewish communities," the report says.

The cost will continue to rise even as Israel extricates itself from the Gaza Strip, paying compensation to settlers and possibly dismantling other settlements as part of a final agreement with the Palestinians.

Chris McGreal

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