The State of Israel has experienced the same Fordism/post-Fordism transition over the last four decades as have all the most influential world capitalist economies such as the US, the UK, China, India and several other countries in Asia, Latin America and the EU. It is this transition encompassing the globalization of Israel's economy and its shift from state capitalist development in its earliest decades to neo-liberal free market capitalism in the 1980s that most influenced the current dynamic of US/Israeli relations. The power of capital increases as it becomes increasingly mobile across borders as the power of labor and the state correspondingly decreases. Indeed it can be argued, as I have in previous writing, that the Oslo Peace Process was less a historic juncture in the history of Arab/Israeli relations than the product of the above mentioned economic transition ushered in by globalization.
The failure of Oslo was in fact mostly the failure of Israeli capital to achieve what Israeli political scientist Yoav Peled describes as the creation of a new, profitable globalized Israeli high-tech sector, funded partly by Gulf oil money, low-cost Arab labor and managerial participation by the new Palestinian leadership sufficiently empowered to enforce and manage a new cross border capital/labor accord in the newly independent West Bank and Gaza. By the early 1990s, neoliberal, free market reforms all over the commanding heights of the capitalist world set the stage for economic globalization. The nation-state basis of international economic organization disappeared as investment capital became hypermobile across international borders creating a new "transnational capitalist class" (TCC) comprising a hierarchy of elites from both the core and periphery of world economy. In many parts of the third world, bourgeois nationalism collapsed as local elites increasingly identified their interests with that of global capital. Thus, it was primarily the globalization of the Israeli economy that pushed it toward the Oslo Peace Process, a political initiative that was intended to remove the existing barriers separating the Arab and Israeli economies to allow a process of corporate led neo-liberalization of the region to occur. Yet is was precisely the neo-liberal origins of the Oslo Accords that set future limits on Oslo's chances for any real progress toward a just and lasting peace between Israel and Palestine.
Writers such as Adam Hanieh point out that Oslo's neo-liberal roots doomed it as a solution to the Israel/Palestine problem by placing political limits on how far sovereignty for any future Palestinian state would be allowed to go. Indeed, the fact that the entire attempt resulted more in a form of Apartheid, with the West Bank (WB) and Gaza converted to clusters of bantustans providing cheap labor to the Israeli economy, than genuine sovereignty for Palestine, is proof of this perspective's validity. Hanieh asserted in 2003, ten years after the signing of the Declaration of Principles between Israel and the PLO, that, "... the Oslo process was not a plan for peace, but a plan to institutionalize the Israeli occupation." He goes on to elaborate;
By transferring limited powers to the newly established Palestinian Authority, the Israeli army could redeploy outside Palestinian population centers, decreasing the level of risk to its own soldiers while maintaining the occupation through checkpoints and periodic closures. Oslo's phased implementation postponed discussion of the central issues—borders, settlements, Jerusalem, refugees—to the end, while allowing Israel to prejudice the outcome of "final status" negotiations with newly created "facts on the ground."
From Oslo to the Current Crisis
Hanieh goes on to describe Oslo's recolonization of the WB shifting from a classic military occupation to the establishment of quasi-autonomous bantustans ringed by Israeli checkpoints. A canton system was established and reinforced by all subsequent Israel/Palestinian Authority (PA) agreements such as Oslo II in 1995 which secured existing Israeli settlements in the WB and the Jewish only bypass roads that allowed them access by prohibiting new and existing Palestinian construction within a given distance of Jewish roads or settlements. This assured that these "cantons" (as they are called) could only serve as a system of noncontiguous cheap labor reserves for both the Israeli economy and, even more importantly, for industrial startups in the WB itself in a newly established system of industrial zones funded by US, EU, Gulf Arab State, Israeli and even Palestinian capital. One report from Le Monde describes the role of Palestinian capital, in particular, and the way in which such Palestinian investors formed part of the new TCC whose political orientation in a globalized world allowed them to identify more with other outside investors than adopt a nationalist politics of genuine independence. Rapoport describes the new situation created both by Oslo and the new 800km separation barrier erected by Israel in 2002 which was itself little more than a unilateral land grab;
The fate of this [Israeli confiscated] land is almost certainly determined: an industrial estate will be built astride the fence, funded jointly by the Israeli authorities and Palestinian entrepreneurs. The farmers, left without land, will have no choice but to work in the new factories for a minimum wage set at barely a third of Israel’s official minimum...After the 1993 Oslo accords Israeli and Palestinian officials agreed a plan to create nine industrial estates along the Green Line in the West Bank and Gaza. From Jenin in the north to Rafah in the south, the estates were to provide jobs for some 100,000 Palestinians... tens of thousands of peasants are now separated from their own lands by the wall. Yet Israeli businesses feel confident about estates near the wall because of the high level of security...Those beside the wall meet the most important requirements of each side: security for Israeli businessmen and employment for Palestinian workers. Olmert said as much: “The industrial estates resolve both the problem of Palestinian unemployment and that of the high cost of labour for Israeli businesses, which are currently relocating to the Far East, and they do it without risk, since the Palestinians won’t be crossing the Green Line”...“Why do you think the Erez industrial estate is still attractive for 200 factories that have stayed put despite all the terrorist attacks?” asked Gabi Bar. “The most important motive is the low wages paid to the workers: around 1,500 shekels ($332) as against 4,500 shekels ($995), which is the minimum wage in Israel. What is more, the employers don’t have to abide by Israeli labour laws.”
The canton system is a true apartheid system which makes most economic activity, including farming, unviable and allows the exploitation of cheap Palestinian labor. The PA enacted a law in 1998 establishing a Palestinian Industrial Estate and Free Zone Authority (PIEFZA) which, according to one MERIP report "was to be the “one-stop shop for investors.” According to the 2010 report in MERIP, articles 39 and 40 of the 1998 law ensure that goods shipped to industrial free zones for manufacture as well as the finished products made there for export "...shall not be subject to any established procedures, taxes or duties...[and] shall not be subject to the rules and legal procedures established for export, export taxes and any other taxes.” It is likely that PA labor laws are for the most part suspended for businesses located in these zones as well. In 1999, PIEFZA director Abdel Malik al Jaber described the PIEFZA law as "...among the most liberal laws regionally and internationally. It provides many incentives regarding taxation, registration, movement of people and products..." The law also encourages and promotes joint ventures between foreign and domestic capital in free zone based enterprises that specialize in high tech thus facilitating technology transfer and greater fixed investment. In this sense, the PIEFZA zones epitomize the global age's emphasis on international capital mobility and foreign direct investment as the basis of local development.
According to one NYT report from early 2014 describes industrial employment of Palestinians as a very complex mix of benefits and burdens. The currently existing 16 industrial parks in the West Bank and East Jerusalem employing over 21,000 workers in 1,000 different business establishments. The report notes the importance of the industrial park manufacturing sector saying that, "They have about 1,000 plants — sophisticated aluminum and food manufacturers as well as tiny textile and furniture workshops — that pump roughly $300 million into the Palestinian economy through salaries..." It is also the case that most workers in the industrial manufacturing sector make well above average wages, some as high as $2,000 to $2,500 a month, yet the hours are long, sometimes 60 hours per week making the hourly pay rate quite low, and working conditions often very poor. In addition, three hundred million dollars is approximately three percent of the entire WB/Gaza GDP which would ordinarily make the employment provided by industrial zone businesses vital to sustaining Palestine's overall economy were it not for the fact that most of the income is spent on imports thus having little spillover effect. Imports are about four times the value of exports which go mostly to Israel.
Yet the WB and Gaza experience high rates of poverty. Many of the Palestinians in the foreign sector don't get the same wages, benefits and treatment despite a 2007 Israeli High Court decision banning any form of employment discrimination in Area C located Israeli owned businesses. Furthermore, many Palestinian workers are employed through labor contractors who take a large share of their wages for work related services such as transportation and the securing of work permits not needed for Israeli workers. Furthermore, Palestinian workers tend to get dirtier, more dangerous jobs than do Israeli workers and have no grievance procedure allowed other workers.
The main problem is that there is little spill over effect into the general Palestinian economy from the foreign sector other than wages; most foreign enterprises are located in Area C of the WB and are cut off from most of the Palestinian owned business in Areas A and B by road blocks and other territorial obstacles as well as a complex permit system that restricts freedom of movement throughout the WB making an integrated and developed WB economy impossible. In addition, since all sixteen industrial parks are located in Area C, the millions of dollars a year in rent paid to local authorities who lease the land to private businesses goes to Israeli municipal authorities depriving the PA of vital revenue. Leases can go for more than NIS450,000/dunnum (one quarter acre) a year and with the industrial parks totally thousands of dunnums the lost revenue annually can run into the low billions or a significant share of the Palestinian GDP. Furthermore, almost all of the output from the industrial zones in Area C, which is effectively Israeli controlled territory, is thus exported to Israel and other countries making the Area C industrial zones little more than an export platform similar to the Maquiladora sector in the US/Mexican border area.
A 2013 World Bank report on the how relief from Israeli military restrictions in Area C and the end of the Apartheid regime in the WB would benefit the local Palestinian economy shows that it is Israel's colonization process that has made meaningful internal development in Palestine impossible. The report claims that;
The faltering nature of the peace process and the persistence of administrative restrictions as well as others on trade, movement and access have had a dampening effect on private investment and private sector activity. Private investment has averaged a mere 15 percent of GDP over the past seven years, compared with rates of over 25 percent in vigorous middle income countries. The manufacturing sector, usually a key driver of export-led growth, has stagnated since 1994, its share in GDP falling from 19 percent to 10 percent by 2011...Consequently, unemployment rates have remained very high in the Palestinian territories and are currently about 22 percent – with almost a quarter of the workforce employed by the Palestinian Authority, an unhealthy proportion that reflects the lack of dynamism in the private sector. While the unsettled political environment and internal Palestinian political divisions have contributed to investor aversion to the Palestinian territories, Israeli restrictions on trade, movement and access have been seen as the dominant deterrent.
It is the neocolonial nature of Israeli rule that has restricted the developmental impact of foreign direct investment on Palestinian society. The establishment of foreign based enterprise zones, which often involve land confiscations and other measures that underdeveloped the WB and keep it in a subordinate state, have increased poverty and dependency. The PA has been complicit in this trend which has led to great disaffection among the population of the WB and Gaza with the PA leadership. Israeli control of Area C, where most of the most valuable resources and agricultural land exist, has severely limited Palestinian economic development while areas A and B, where most of the population exists, remain discontiguous bantustans providing cheap labor to industrial zones in area C where most of the better employment opportunities exist. Foreign sector employment, despite being sometimes better paid, cannot drive internal development under the current circumstances. Thus, the globalization of Palestine has only deepened its dominance by Israel, established it as a subordinate export platform exploited by foreign capital and has led to the very violent resistance that Oslo was supposed to prevent.
Yet foreign enterprises, even after years of destructive war and dislocation in the WB and Gaza, are still expected to employ the majority of Palestinian workers. Massive investment has been pouring into the economies of the West Bank and Gaza. Turkey's planned investment for an industrial zone in the WB was scrapped after it was exposed that the PA made a secret deal to devolve all political authority to the Turkish managers of the industrial zone! The Gaza flotilla incident sealed its fate. Since last year, efforts have restarted to open the Jenin industrial park under the management of the Turkish company. The proximity to the port city of Haifa is one logistical advantage to the choice of Jenin in the northern part of the WB near the "Green Line" with Israel. In the above cited MERIP report (2010)Sami Bahour, a Palestinian businessman and writer, points out that certain Israeli studies expect the industrial free zones to eventually employ up to half a million Palestinian workers (most of the available workforce) and have a spill over effect into the local private sector with as many as one in three Palestinian owned small businesses developing supply and subcontracting linkages to the zones. Though political problems stand in the way, efforts continue to globalize the Palestinian economy through Israeli and other outside investors.
One high profile example is the Israeli owned Soda Stream plant near the WB's Ma'ale Adumim plant which employs over 1,300 workers, mostly Palestinians from the WB and from towns inside pre-1967 Israel. Ma'ale Adumim is a large, illegal Israeli settlement near East Jerusalem that hosts the factory. Those employed there often work for more than 12 hours a day but, according to a IBT report, receive well above average wages by either Israeli or Palestinian standards (a monthly salary of about $2,000 well above the current PA mandated minimum of NIS1,450-or $382/month at the current exchange rate). Soda Stream is one of the few foreign sector companies that does provide decent wages, many other establishments don't. A large number of Palestinians rely on their jobs at places like the Soda Stream factory for their livelihood as the Palestinian private sector is much weaker than foreign capital. But it is the company's location in an illegal Israeli settlement that creates so much bitterness among the Palestinian workers at the plant. Soda Stream plans to move its factory out of the WB later this year; the boycott has taken its toll on the company over the past three years and the NASDEQ listed global corporation has seen significant drops in its share prices since 2013.
The boycott of Soda Stream by activists was just the type of problem that Israeli capital hoped to make a thing of the past with the signing of the Oslo Accords; peace between Israel and Palestine was to open a new epoch of global trade and investment unhindered by political boycotts. But the colonial nature of Israel's occupation made success impossible. Instead, the global dynamic of Israeli and other foreign direct investment in the WB and Gaza is guided by colonialist institutions with the PA acting as a local enforcer and continued foreign military occupation in all but a fifth of the territory of the WB much of the remaining land of which has been appropriated by foreign settlers and investors. According to the IBT report, the boycott is based on continued illegal settlement of the WB, not that Soda Stream is Israeli owned. One Oxfam representative confirmed this fact. The Israeli factory is located on the grounds of the settlement in "Area C" of the WB which is defined as entirely under Israeli control (vs. joint Israeli/PA control in Area B and total PA control in Area A) Nearly two thirds of the WB is taken up by Area C. The IBT report cites a World Bank estimate saying that if there was a full Israeli redeployment from Area C allowing total independent economic development the WB economy would experience a growth in GDP by about 35%!
The continued colonization of the WB by Israel has not only limited its growth potential; it has created a cluster of bantustans that have gone well beyond a neocolonial situation into full blown apartheid. Israeli colonization of the WB in particular created a cheap labor pool for foreign industry by making the agricultural sector unviable. According to a Ghent University report, at the start of the occupation in 1967, the WB agricultural sector accounted for nearly half of WB GDP with most of the fruit and vegetables grown there exported to foreign markets. By the signing of the Oslo Accords after nearly three decades of occupation, barely one fifth of the WB GDP was comprised of agriculture with most of the WB's former export markets taken over by Israel and other countries. Today, significantly less than ten percent of the WB GDP stems from the agricultural sector largely due to its destruction by the apartheid nature of the Oslo regime. The destruction of a successful agricultural sector is the classic colonial tactic of creating cheap labor reserves for generally foreign industry. The very depth of the colonial nature of Israel's early military occupation of the WB carried over into the post-Oslo phase of Israel/Palestine relations such that no set of agreements or "road map" to reform could possibly create meaningful change. Instead, the situation actually worsened after Oslo with the kind of violence we've been witness too over the past twenty years in both the WB and Gaza. The political violence and unrest that followed Oslo II dashed any hopes in the US, the EU or anywhere else for a highly integrated regional economy with global investment creating one giant industrial export zone.
Oslo was therefore intended not merely a means to transcend the Arab economic boycott of Israel, which cost Israel tens of billions of dollars in lost trade and investment over the years, but to integrate all the economies of the region which itself would become one globalized economic sphere which was previously hindered by the boycott. But that also implies the transformation of civil society groups into global actors as well. Adam Hanieh, a Palestinian scholar whose work on the impact of Oslo and globalization on the Palestinian economy and civil society is the most detailed thus far, has posited deep impact on WB society from the twin processes of economic integration and the peace process. Hanieh sees globalization as deepening Palestinian dependence even as it creates a more globally responsive Palestinian bourgeoisie whose wealth and international connections improve through their external relations. Hanieh thus sees both a deepening dependence of the local capitalist class on foreign capital (both aid and investment) led by the PA whose role resembles that of the old comprador bourgeoisies of third world countries in the pre-global era. He explains;
"...the second major feature of the socioeconomic transformation of the West Bank was related to the nature of the Palestinian capitalist class. In a situation of weak local production and extremely high dependence on imports and flows of foreign capital, the economic power of the Palestinian capitalist class in the West Bank did not stem from local industry, but rather proximity to the PA as the main conduit of external capital inflows. Through the Oslo years, this class came together through the fusion of three distinct social groups: “returnee” capitalists, mostly from a Palestinian bourgeoisie that had emerged in the Gulf Arab states and held strong ties to the nascent Palestinian Authority; families and individuals who had historically dominated Palestinian society, often large landowners from the pre-1967 period, particularly in the northern areas of the West Bank; and those who had managed to accumulate wealth through their position as interlocutors within the occupation since 1967...This new three-sided configuration of the capitalist class tended to draw its wealth from a privileged relationship with the Palestinian Authority, which assisted its growth by granting monopolies for goods like cement, petroleum, flour, steel and cigarettes; issuing exclusive import permits and customs exemptions; giving sole rights to distribute goods in the West Bank and Gaza Strip; and distributing government-owned land below its value. In addition to these state-assisted forms of accumulation, much of the investment that came into the West Bank from foreign donors through the Oslo years – infrastructure construction, new building projects, agricultural and tourist developments – were also typically connected to this new capitalist class in some way."
Hanieh sees Israel's continued neocolonial dominance of Palestinian society, economy and external relations, a dominance that has been the bitter source of some much of the violence and resistance over the past twenty years, as the tie binding together the PA state and Palestinian bourgeoisie and both of them together to the global economy often via Israel itself. Palestinian exports often enter foreign markets based on Israeli trade quotas and Israel controls about two thirds of the import taxes that accrue to the PA which relies on Israel honoring its commitment to disburse the funds as promised. All this creates a common interest between Israel and the Palestinian elites, both public and private, in the continuation of the Oslo/globalization project. Hanieh asserts that neoliberal globalization only deepened the neocolonial dependency of the PA state and society on Israel instead of reducing state power as it had done elsewhere. He explains that,
"The rampant spread of patronage and corruption were the logical byproducts of this system, as individual survival depended on personal relationships with the Palestinian Authority." It is precisely this set of relations that boosted the political popularity of Hamas winning the PLC elections in January 2006. Thus, continued conflict has effectively blocked Oslo's global economic integration agenda in the Middle East.
Some integration has taken place however with Jordan and Egypt both hosting foreign investment in their manufacturing sectors, more and more of which is being established in Qualified Industrial Zones (QIZ) the output from which enters foreign markets with reduced or eliminated import taxes. Yet the political instability in the region has lessened the potential impact of these efforts.
The Oslo Peace process opened a new era of diplomacy between Israel and its Arab neighbors mostly by establishing face to face talks between Israel and the Palestinians for the first time. Yet Oslo was more a product of globalization and the turn toward neo-liberal free market economics experienced all over the world from the early 1990s onward. The impact of this process transformed national elites into global ones as capital concentrated output, ownership and profits while greatly increasing its mobility across national boundaries. Foreign direct investment currently accounts for roughly one third of the world's non-residential gross fixed capital formation up from less than five percent at the start of the 1980s. This process required the breakdown of national agenda, political orientation and consciousness in general and its replacement by global thinking and governance. The nation-state basis of economic organization was quickly being transcended by global capital mobility. Yet this process took place differently in the Middle East due to its unique history and political instability. In the case of Israel/Palestine, Israeli neocolonial dominance asserted itself even through the globalization process severely limiting the transnational potential of the Palestinian bourgeoisie while preserving Israeli control.
The effect of the process on Israel was different. Israel's grip on Palestine was enhanced by a process intended to grant more independence to the Palestinians while Israeli capitalists shifted from a national bourgeoisie (formerly highly dependent on the Israeli state) to a more powerful and independent capitalist class similar to other parts of the transnational capitalist class. In a piece I published in 2004 entitled Israel, Neocolonialism and US Hegemony I discussed in detail the nature of the transition Israel underwent from Keynesian welfare state capitalism, dominated by heavy state economic participation and ownership, strong labor unions and an economically ascending middle class to neo-liberal global capitalism which saw a retreat of the state, the fragmentation of labor and the growth of income inequality and the increase in the power of capital and its cross border mobility. The once vital role of the Israeli state in building and sustaining the economy now became a fetter on the private profitability of capital in the global age. It was the new needs and political orientation created by this transition, and its role in integrating not only the Israeli but the Palestinian bourgeoisie into a transnational capitalist class, that created the political conditions for the Oslo Peace Process to emerge. Bourgeois nationalism gave way to transnational economic aspirations among elites on both sides allowing the common pursuit of an agenda to open (and integrate) the economies of Israel and Palestine to global direct investment and trade to unprecedented levels. I describe the nature of political transition below.
What had taken place was clearly not only the decline of one fraction of Israeli capital in the face of another’s ascendancy, but rather the merging of the commanding heights of local Israeli capital into an overarching transnational capitalist class with interests based on the opening up of local economies and the merging of production and investment on a global scale. Local productive structures were streamlined to fit the investment strategies of the emerging transnational bourgeoisie into which the local elites were being merged. Local and global class interests merged, and the logic of accumulation on a world scale eliminated former national bloc rivalries...Globalization of the Israeli economy created new political imperatives. The transnational fraction had captured the state in the 1992 election of Yitzak Rabin and the Labor Party and asserted its political agenda for a more economically and politically stable basis of profitability and renewed capital accumulation on a global scale...Since neoliberal globalization was the foundation of the Oslo Peace process, the opening up of the new Palestinian economy and its redirection as a dependency of the highly globalized Israeli economy were increasingly essential.
Global capitalism has reinforced the power of capital by making it hyper-mobile across international boundaries while weakening the former power of trade unions and the middle class in general. This also involves a retreat of the state from the role it played in the epoch of national capitalism in sustaining national growth and development not least of all through the promotion of the middle class consumer demand to sustain industrial output. The determining impact of globalization and the limits it placed on the Oslo peace process have created the crises we've had to endure for the last twenty years. The failure of Oslo was not the failure of Israeli and Palestinian peace efforts alone but the consequence of globalization's typical pattern of driving a wedge between the rich and poor all the while deepening the existing power disparities between the strong and the weak.