A Future Economic Strategy For Peace

If the West does not want to turn the West Bank into another Gaza, it should review its foreign aid policies.[1] As the great economic journalist Henry Hazlitt (1894-1993) once wrote: "Government-to-government foreign aid promotes statism, centralized planning, socialism, dependence, pauperization, inefficiency, and waste."[2] Foreign aid brought no growth to the Palestinian people. The beautiful residential areas in Ramallah were built not by foreign aid money but by American-Palestinians, who decided to personally invest in the area.

Palestinian Authority President Mahmoud Abbas (left) and Hamas leader Ismail Haniyeh (Source: Twitter)

In fact, foreign aid not only discourages the creation of an entrepreneurial culture, but it also discourages steps toward peace in war-torn areas. As Nobel laureate in economics Angus Deaton noted: "Large inflows of foreign aid change local politics for the worse and undercut the institutions needed to foster long-run growth. Aid also undermines democracy and civic participation, a direct loss over and above the losses that come from undermining economic development."[3] Along the years, the Palestinian Authority (PA) has been associated with corruption and started to lose credibility among the population. The leaders of the PA, who live in luxurious villas in Ramallah, proved right the words of British economist Peter Bauer: "Aid is a process by which the poor in the rich countries subsidize the rich in the poor countries."[4]

In fact, as Zambian-born economist Dambisa Moyo stated, aid "props up corrupt governments – providing them with freely usable cash."[5] Having foreign aid strengthen the role of the PA, no new Palestinian political leader was allowed and able to rise in the West Bank. The only alternative to the PA has been Hamas, who won big in the recent student elections at flagship Birzeit University in the West Bank.[6] However, Hamas itself – which is designated as a terrorist entity in the U.S. and in the EU –  has been able to establish itself politically and militarily in Gaza due to foreign aid (it has been calculated that from 2014 to 2020, just the U.N. agencies spent nearly $4.5 billion in Gaza,[7] to this it should be added billions of dollars from Qatar,[8] millions from USAID and the EU[9] for a Gazan population of only two million people).

Whoever claims that international aid in Gaza helps the people and not Hamas is either naïve or lying. In 2015, trying to justify the aid, Qatari official Mohammed Al-Emadi stated clearly: "If you want to help Gaza. Hamas is your best contact. You have to support them. You do not like them, do not like them. But they control the country, you know."[10] Control of Gaza was given to Hamas by foreign aid that allowed them to hold the grip on every sector of society (i.e., hospitals, education, media, judiciary, security, etc.) The same goes for the Palestinian Authority (PA) in the West Bank. The fight between the PA and Hamas about who is the sole legitimate representative of the Palestinian people is not about moral values, but about who should cash the aid, as whoever controls the money has the power.

Hence, foreign aid killed any chance to turn Gaza and the West Bank into vibrant pluralistic societies. This free usable cash encouraged the worst tendencies and emboldened the PA and Hamas to get rid of any alternative to their autocratic rule. Whoever allows themselves to think differently gets labeled a spy and is jailed or killed. Furthermore, aid also freed the PA and Hamas from any responsibility, since no matter what they do, no matter how they behave, they will continue getting free cash.

Only direct investment can help establishing a different Palestinian society. Private investment in private enterprises promotes production, self-reliance, and responsibility. "It is by attracting foreign private investment that the great industrial nations of the world were once helped. It is so that America itself was helped by British capital, in the nineteenth century, in building its railroads and exploiting its great national resources," Henry Hazlitt stated.[11] Promoting direct investments instead of foreign aid would limit the government's control over all aspects of life. Therefore, the monopoly of the PA and Hamas would decrease (paraphrasing a known commercial, no money no party) and new real alternatives would spread. In fact, direct investments are not gifts, which imply that interests should be produced, leading to an economic system based on private property and individual rights.

Hazlitt further argued: "Would-be humanitarians... [tell us that] no progress is possible without help from outside. This theory is today propounded unceasingly, as if it were axiomatic. Yet the history of nations and individuals shows it to be false."[12] Indeed, foreign aid (i.e. free cash) helps only the PA and Hamas to prolong their rule and cutting it would be a courageous choice to give a chance to prosperity and peace.

*Anna Mahjar-Barducci is a MEMRI Senior Research Fellow