The Palestinian economy is indeed in deep crisis. But lack of private sector investment is a symptom rather than a cause. The World Bank reports that the main obstacles to Palestinian economic growth are political—chiefly, Israel's fragmentation of Palestinian territory and restrictions on the movement of Palestinian goods and people. While these persist, grandiose initiatives to promote Palestinian development are a distraction, or else an attempt to maintain the political status quo. As the Financial Times reported dryly in 2008, 'Mr Netanyahu wants to see the West Bank divided into a collection of disconnected economic zones with dedicated business projects'. It is 'astounding', says Harvard's Sara Roy, a specialist on Palestinian political economy, that the Obama administration is reviving an approach which aims to 'substitute limited and transient economic gains for an end to Israel's occupation'.
Kerry insists that his economic programme is 'not a substitute for the political approach', which remains 'our top priority'. But Israel's government rejects the international community's terms for settling the conflict, and the Obama administration is unwilling to pressure it to moderate its position. Unless this changes, Israel's occupation will persist, and the extent to which it can ease its strangulation of Palestine's economy is limited. The World Bank cites Israel's control of Area C, nearly 60% of the West Bank, as the principle obstacle to sustainable Palestinian development. Over the past year in Area C, Israeli authorities rejected 94% of Palestinian applications for building permits and demolished hundreds of Palestinian structures, displacing nearly 800 people. The Netanyahu government, an Israeli newspaper reports, has rejected a request from Kerry to permit the PA to build factories there.
In the absence of political progress, the most the U.S. can hope to achieve is a temporary revival of 'Fayyadism', the programme of investment and institutional reform implemented after 2007 by Palestinian Prime Minister Salam Fayyad, who resigned last month. Fayyad sought to develop the Palestinian economy and construct the institutions of a future Palestinian state without waiting for a negotiated settlement with Israel. 'The reality of [a Palestinian] state', he declared, 'will impose itself on the world'. Fayyad succeeded in implementing several important reforms, and oversaw a period of growth in the West Bank. But as the World Bank reported in a study timed to mark the deadline Fayyad had set for establishing an independent state, this was 'unsustainable, driven primarily by donor aid rather than a rebounding private sector'. Reduced aid flows in 2011 precipitated a fiscal collapse from which the PA has yet to recover. More broadly, 'the structure of the Palestinian economy has substantially deteriorated' since the Oslo process began in the early 1990s, having been systematically de-industrialized and rendered wholly dependent on Israel's economy and international aid. Aid-fuelled bubbles and the perpetual provision of life-support are compatible with Israel's occupation; sustainable development is not.
Peace process vs. internationalisation
Rather than a serious attempt to put the Palestinian economy on an independent footing, Kerry's initiative is better understood as a response to growing international pressure on Israel, and domestic pressure on the Palestinian Authority, to bring the occupation to an end.
The U.S. and Israel have consistently rejected international law and opinion as a basis for resolving the conflict, with good reason: as former Israeli Prime Minister Ehud Barak explained, 'on the matter of borders, the entire world is with the Palestinians and not with us'. Thus, when Palestinian negotiators at Camp David insisted that Israel accept the internationally-recognized pre-June 1967 border as a baseline for negotiations, President Clinton was furious. 'This isn’t the Security Council here,' he fumed. 'This isn’t the UN General Assembly… I'm the president of the United States.' 'I am a lawyer', then- Israeli Foreign Minister Tzipi Livni told Palestinian negotiators in 2007, 'but I am against law—international law in particular.'
The U.S.-led peace process has likewise been based not on internationally-agreed principles but Israeli and Palestinian demands, mediated and adjudicated by the U.S. The U.S. and Israel have explicitly presented the peace process as an alternative to, and used it to deter, measures by the international community to impose a solution to the conflict. The Obama administration justified its opposition to the Palestinian Authority's bid for United Nations recognition in September 2011 on the basis that an internationalization of the conflict would complicate potential bilateral peace talks. Earlier this month it pressured the EU to shelve plans to accurately label goods produced in Israeli settlements, on the same grounds. The peace process's very existence is the product of secret discussions between Israeli and PLO officials, culminating in the 1993 Oslo Accord, which subverted the official negotiations being conducted at the time. Whereas official Palestinian representatives demanded the fulfilment of Palestinian rights under international law, the Oslo Accord, and the peace process it initiated, neglected even to demand the dismantling of Israeli settlements.
Today, in the face of protracted diplomatic stagnation, Europe in particular is growing impatient. A recent open-letter signed by 19 former senior European officials stated frankly that the Oslo peace process 'has nothing more to offer' and urged a 'new approach'. A non-binding 2012 EU Heads of Missions report went so far as to propose sanctions on Israeli settlements. Israeli officials have sought to restart direct negotiations to pre-empt the threat of international measures. In a stormy Knesset debate, Avigdor Lieberman recently urged opponents of a two-state settlement to support a revived diplomatic process, in the interests of 'conflict management'. 'If we do not initiate', he warned, 'there will be others who will put plans on the table'. The Obama administration's appeals to non-existent negotiations can only defer international action for so long.
Zombie Fayyadism It has already caved to U.S. pressure and pledged to refrain from further appeals to the UN or the International Criminal Court. Depending on how much money he and Blair's team are able to raise, Kerry's ideal scenario could materialize and hold for a while—but as long as Palestinians insist on their right to self-determination, and Israel remains determined to frustrate it, the cash will at best paper over the underlying contradictions, which are only growing with time.