Flawed analysis; wrong numbers

Recent article claiming to estimate 'cost of occupation' off the mark
Joel Bainerman

As a veteran economics writer and researcher nothing irks me more than when a political viewpoint masquerades as sound economic analysis.

Take the recent op-ed in Ynetnews by Avi Shauli: “Cost of Occupation- over $50 billion”

Shauli claimed that since Israel occupied Gaza and the West Bank in 1967, its control over the territories has cost the country more than $50 billion and curtailed development of other sectors.

Rebuttle to Avi Shauli's article

Cost of occupation – over $50 billion / Avi Shauli

Since Israel occupied Gaza and West Bank in 1967, its control over the territories has cost country more than $50 billion, and curtailed development of other sectors

לכתבה המלאה

He writes: “According to experts' estimates, the total economic cost of the occupation has by now reached more than $50 billion, including security and civilian expenses (the construction and maintenance of the settlements,) as well as the potential loss of gross domestic product.”

As an investigative reporter, I hate when other journalists quote “experts” but leave them unnamed. More often than not, experts in all fields are academics, so being quoted “on the record” is only in their interests. It is highly unlikely they would have said to Shauli: “sure, you can quote me, but please, under no circumstances use my name.”

As someone who has a background in studying how economics impacts the political conflict in the Middle East, I would have loved to check the numbers of the “experts” to see if they pan out. In this case, unfortunately, Shauli did not allow for that.

According to the way Shauli presented the facts, it has to be assumed that despite the fact that Jewish residents of Judea and Samaria pay taxes - national, local and VAT - according to him they are simply not entitled to receive any government services. Thus, anything provided to them is paid for by the rest of the citizens of Israel and should be considered “the cost of the occupation” – a direct subsidy from those living inside the Green Line to the settlers.

Shauli continues: “The civilian cost of the settlements is valued at about NIS 2.5 billion per year. The value of property built in the territories is estimated at over $14 billion, and the losses in domestic product for the Israeli economy due to the recession that followed the second intifada are estimated at NIS 50 billion.”

So if the settlements have a market cap of $14 billion, that means we must deduct from that NIS 50 billion (about $10.5 billion) because the Palestinians decided to launch the Intifada. Certainly the Jewish residents of Judea and Samaria didn’t start that war. Nor did the Israeli public. Why should the bill be sent to the settlers?

I was surprised to read that the settlers were also not invoiced by Shauli for the losses caused to the Palestinian economy, since according to Shauli, the very existence of the settlements is directly related to the loss the Israeli economy suffered from the intifada, thus using the same rationale - the settlements are also responsible for the huge losses caused to the Palestinian national economy.

Shauli writes: “Experts noted that the occupation of the West Bank had many indirect implications as well.”

Those unnamed experts again. One would think anyone making an argument as sensitive as this one would have read and quoted at least one academic or professional study on the subject.

Evacuation too expensive

Shauli continues: “Experts noted that the occupation of the West Bank had many indirect implications as well, including the use of cheap Palestinian labor until the first intifada and their consequent replacement with foreign workers, at the expense of Israeli workers.” (There are those phantom “experts” again who conduct serious research but publish it anonymously.)

What Shauli is contending is that if there was no occupation, and Palestinian workers would never have been allowed to work in Israel - then the Israeli economy would have saved massive amounts of money. In the same paragraph he is also suggesting that when these workers had to be replaced by foreign workers at an additional cost the national economy was at the expense of the Israeli worker.

Sorry, but you can’t have it both ways. You can’t argue the cheap labor that the Palestinians provided to the Israeli economy was bad, but then when that manpower was replaced by foreign labor, that this too was bad because these jobs were taken away from the Israeli worker. I assume Shauli has never seen Palestinian workers or their foreign counterparts in action – however, for those who have seen it, these jobs were not “stolen from Israeli citizens.” Instead, they are jobs few Israelis want, and as a result, it enabled more Israelis to pursue more value-added skills that provided much more to the national economy than unskilled labor.

Shauli concluded his essay by arguing: ”The cost of evacuating 250,000 settlers from the West Bank is expected to stand at more than NIS 250 billion.”

From this, anyone from the right end of the political spectrum would have to conclude that if it will cost more than $50 billion to evacuate the 250,000 settlers of the West Bank (Peace Now claims there are 420,000 settlers if the communities around East Jerusalem are included) then what better argument could be made than “while we would like to evacuate all the settlements - we simply can’t afford to.”

The fact is, once Sharon’s disengagement plan is complete, these 300,000-400,000 Jewish residents of Judea and Samaria will be annexed to Israel - which is the exact reason why the so-called “security fence” was built - to be able to annex these large populations into Israel proper.

When that happens, due to the improved security situation around these settlements, the lower price of real estate, and high quality of life, the value of real estate will rise and the population will increase - providing the Finance Ministry with more tax revenues.

As the settlements become more intertwined into Israel proper they would become less of a financial burden on the state budget. Even the issue of whether to build the security fence to encompass large populated centres has an economic component, and ultimately, it may be much cheaper to extend the fence 12 miles inland rather than pay compensation to 20,000 residents.

Of course, there has been a cost to the occupation - but whatever that was, Shauli certainly did not bother finding it out before he decided to write an essay on the subject.