WILL IT BE GOOD - 28-Oct-94

(Article by Gideon Eshet, 'Yediot Ahronot', Oct. 28, 1994. pp.3-7)

IN ANOTHER FEW YEARS, WHEN THE DUST OF ALL THE TALKING SETTLES AND THE PEACE PROGRAMS ARE SPELLED OUT, WE WILL BE ABLE TO SEE A CASINO IN THE DESERT, AN UNDERWATER PARK, HIGHWAYS, EXPRESS TRAINS TO SAUDI ARABIA AND GAS PIPELINES FROM QATAR. IN THE MEANTIME, THE JORDANIANS HAVE NO MONEY FOR OUR PRODUCTS; WE HAVE NO INTEREST IN THEIRS. TOURISTS WILL BE OUR MAIN EXPORT; PICKLED CUCUMBERS WILL BE THEIRS.

One of the widespread mistakes, primarily in newspapers' economic sections, is that peace between enemies is supposed to pay off from an economic standpoint as well. This is fairly surprising, considering the fact that our first peace with Egypt over the last 16 years, lacks all 'utility' in the commercial meaning of the word. And despite this situation, peace still stands on its own merits. Now, let us discuss the economists and their narrow accounts.

Several weeks ago, I participated in a seminar of economics journalists from Israel, Jordan and the Palestinian Autonomy, which was initiated by the European Union (the former Common Market) as a result of the good will and money to bring a little economic utility to the political moves. The disagreements quickly became clear: we, the Israelis, spoke economics. Our neighbors to the east spoke politics. As unpleasant as this is, it understandable.

Why, then, will the economic fruits of the peace agreement be modest? Following are several explanations:

A. Politics. For now, we have three peace agreements, but very little peace. A foreign investor and that is the the person whom we all want to see, finally, wandering around the Middle East would currently prefer to invest in China, Indonesia, Malay sia and India. Not, God forbid, because of anti-Semitism, but because the politics of our region are perhaps moving in the right direction, but have yet to arrive at the hoped for destination. For example, handling popular Islam.

B. Sociology. One of the Jordanian journalists who participated in the seminar took pains to explain to the Israelis the problematic Jordanian position regarding Israel. For decades, the journalist explained, the Hashemite regime based itself on a massive recruiting of 'Jordanians' for the public sector. Only a small number of Palestinians were able to exercise this option. The political system is in the hands of those same 'Jordanians', and it is with them that Israel negotiated.

However, they do not control the economy. The Palestinians, who did not have the option of integrating into the political-public system, invested all of their energy in the business sector. For example, the largest bank in Jordan, the Arab Bank, is under Palestinian control. The political sensitivity of the Palestinians in Jordan for their brethren across the river is tremendous. As long as we have not completed the arrangement with the Palestinian Authority, their brethren to the east will keep their distance from us.

C. Legal hurdles. Regarding the territories, the legal situation is 'anti-economics.' We would do well to remember that no Israeli investment in Ariel, Netzarim or Ofra was carried out without state guarantees. As long as the occupation is in force, a foreign investor will be deterred by the legal arrangements, especially the property arrangements, which exist in those same territories. Our arguments with the Palestinians over authority, the lack of success of the Palestinian Authority, and the lack of clarity regarding who will rule what, and regarding the legal systems all of these are deterrents to proper economic relations. It is also worth remembering that the Jordanian legal system prohibits economic relations with Israel. It could be that the parliament will reverse the legislation it is a Jordanian commitment in the framework of the agreement, but we must wait and see the timetable for implementation.

D. Standards. The State of Israel is full of standards. Some are to protect the consumer and some are to protect local production. It could be that most of our standards really are good and necessary, but that is not what is important. To the manufacturer from the West Bank and Gaza, and to the manufacturer from Jordan who are used to a free and unsupervised system our standards appear to be one more obstacle set up by the Israeli economic giant to fair economic relations. Our neighbors do not understand that some of our standards are actually to their benefit. Whoever manufactures a product which does not meet an Israel standard, should forget about meeting a European standard. However, people over there are not exactly dreaming of Europe.

E. Trade. Aryeh Arnon and Jimmy Weinblatt, of the University of Beersheva, recently published the results of research regarding trade possibilities between Israel, Jordan and the Autonomy. Today, Israel exports $1 billion worth a year to the territories and imports $250 million worth. According to the researchers, trade will decrease. We will export only half a billion. One of the reasons: part of our exports today are 'forced export.' The possibility for the Palestinians to buy products from other countries, as well as the lifting of limitations for independe t production, will decrease the demand for Israeli products.

The situation with Jordan does not seem much better. Here we are talking about $250 million worth of exports a year. All of these numbers are nothing compared with Israel's overall exports.

Why? In principle, Jordan and the Autonomy do not have the buying capability needed to purchase items from Israel. On the other hand, they also do not have the qualitative capability to sell large quantities of their own products in Israel. As a rule, the rich trade among themselves. The poor (the per capita income in Jordan and the territories is one-tenth of that in Israel) have little to buy and little to sell.

This is, in my opinion, what the next two years hold in store. The economic fruits may come from one of the two following scenarios:

The first scenario: if an agreement is signed with Syrian and Lebanon in the future, and all of the political problems are dealt with, interest from private economic initiators will increase. Also, it important to remember, the Middle East will be considered a small market in comparison with the growing nations in South-East Asia. According to Arnon and Weinblatt, over the next thirty years, we can expect an increase in trade of 10% a year between Israel and Jordan.

The second scenario: in the absence of private initiators, public initiative can only move things along very slowly. If a regional bank is established this week in Casablanca; if western countries grant substantial guarantees for private investment; if the region's governments replace their security costs with infrastructure costs the public sector could bear any fruits.

The public sector needs, despite the economists' point of view, to invest in projects which at first glance appear uneconomical. It is worthwhile to remember that Dead Sea Works was established through government funding and showed only losses for at least the first 15. In the absence of real peace, and in the absence of real buying power and a good judicial system, a private initiator will require too much profit to invest in the region.