Book review: understanding the economics of occupation

Originally published on Electronic Intifada.

Asa Winstanley, The Electronic Intifada, 1 November 2010

Economist Shir Hever has served as the main author behind a series of pamphlets entitled “The Economy of the Occupation” published by the Alternative Information Center in Jerusalem during the past five years. The pamphlets serve as the basis for Hever’s debut book, The Political Economy of the Occupation. Although the work as a whole is still a little disjointed at times, there are enough flashes of brilliance to make this new book more than worth your while.

Hever has an impressive grasp of the literature and has trawled through a slew of primary and secondary sources and raw data to synthesize a solid analysis of the economic factors behind the Israeli occupation of the West Bank and Gaza Strip. Indeed, The Political Economy of the Occupation abounds with fascinating and original insights.

Hever outlines three distinct periods: the early occupation, the late occupation (or the years of resistance) and the privatized occupation (the last two periods overlapping). While Israeli Prime Minister Benjamin Netanyahu proposed a policy toward the Palestinians of “economic peace” during the 2009 elections, the origins of this idea can be found at the beginning of the occupation in 1967 — of course, it failed.

Hever recounts that soon after occupying the West Bank in June 1967, the military authorities implemented policies such as the “open bridge” to Jordan (an “enemy state” at the time) which allowed Palestinians to continue trading with the Hashemite Kingdom. But this was only one element in a carrot and stick approach. Palestinians were required to obtain permits from the military regime for “nearly any economic activity, from going to work inside Israel to setting up a shop.” Such permits were often revoked in cases where the Israel Security Agency, or Shin Bet, made accusations of “dissenting political activity” (p. 9).

Such economic suppression forced Palestinians in the West Bank and Gaza to cease working on independent farms, as they became unprofitable. Many then sought jobs within Israel or in the newly booming oil economies of the Gulf states.

This situation would not last. Declining oil prices in the 1980s meant that Gulf demand for migrant labor was significantly reduced, economic crisis within Israel itself meant that the pay of Palestinian laborers was reduced, and increased Israeli colonization of the West Bank and Gaza all formed part of the background that led to the outbreak of the first Palestinian intifada in 1987. Hever explains that “economic deterioration in the occupied territories … was one of the most important reasons, [for the outbreak of the first intifada] though not the only one” (p. 11).

With the first intifada, Hever’s “early occupation” period transitions to the “years of resistance” — which essentially continues until today. Despite a short-lived fashion for talk about a “peace dividend,” the Oslo years of the mid-1990s actually made things worse for the Palestinians with an increase in checkpoints and restrictions on movement “because of the closure regime that was implemented by Israel in parallel with the negotiations … the standard of living of the Palestinians actually fell during the Oslo years” (p. 12). Meanwhile, “Israel enjoyed an economic boom” until the outbreak of the second Palestinian uprising in 2000 (p. 13). Hever’s solid analysis of the data demonstrates that armed Palestinian resistance during the second intifada was the major factor behind a recession in the Israeli economy. However, the recession was relatively short-lived.

It is an oft-quoted fact that Israel is the biggest recipient of US military aid. But from Hever’s analysis of World Bank data, we also learn that until 2003 (when it was overtaken by the puppet regime in Iraq) Israel was the biggest recipient of foreign aid in the world. Israel even receives more per capita aid than the Palestinians. Based on cumulative figures from 1994 to 2006, Israel has received the fifth-largest amount of per capita aid in the world, overtaken only by a few island dependencies (p. 30).

Hever’s chapter on the costs and benefits of the occupation of the West Bank and Gaza to Israel is brilliantly sweeping, and deserves wider attention. He concludes that although the occupation has both financial benefits (e.g. Israel can exploit natural resources in the West Bank) and costs, the costs have greatly outweighed the economic benefits (before the outbreak of the first intifada in 1987, it was actually profitable). It remains a fact that “the main reason for the occupation’s costliness is Palestinian resistance” (p. 68). It is only foreign aid that makes the occupation even possible — but even this is not sustainable, as the cost of the occupation rises every year.

Hever maintains a rational perspective. He is an economist by training, and the focus of this book is on economic factors, but Hever does not overstate the influence of financial relations on human affairs. He understands that human actors often have a variety of competing rationales, and that economics, while influential, is only one such motivation.

Considering how focused it is on statistics, figures and graphs, it is something of a surprise to find that The Political Economy of the Occupation is written in a very readable style throughout. Hever deftly addresses a wide variety of topics and it is only in the final, more theoretical, section of the book that this slips.

In the 50-page penultimate chapter, Hever outlines some economic theories and suggests some connections to his analysis. While the chapter makes for interesting economic reading, it is largely disconnected from the rest of the book. Moreover, the author’s attempts to find connections with the practical realities seem tentative. Hever even says in his introduction that the chapter could be “safely skipped” by most readers.

Another limitation is that he does not really challenge the artificial separation between the Israeli and Palestinian economies. Although he points out in the introduction that “the spatial economic distinctions” between the two economies are “largely artificial,” most of his analysis does maintain such distinctions (p. 2). A more integrated analysis may have led to Hever uncovering even more original insights. But Hever does conclude the book on a high note with a personal endorsement of a single democratic state in all of historic Palestine, so perhaps the best is yet to come in his future work.

The most glaring omission of the book is analysis of the growing boycott, divestment and sanctions movement, targeted against the Israeli apartheid regime. Hever does mention it in passing, but it leaves the reader wanting. One can only hope that he is planning a book devoted to the history and analysis of the boycott movement; after all, the Alternative Information Center has often been the first to break stories from the Hebrew business press that show the real-world effects the campaign is having, even at an early stage.

On its YouTube channel, the Alternative Information Center recently released a brilliant six-part series of talks on the topic by Hever, which argue convincingly that not only does the boycott campaign have a realistic chance to succeed, but in fact Israel’s economic dependence makes it uniquely vulnerable to international pressure (“Economy of the Occupation: BDS Boycott Divestment and Sanctions“). Like The Political Economy of the Occupation, the videos are essential for anyone wanting a better understanding of the economic impact and vulnerabilities of Israel’s occupation.

Shir Hever has written an important first book, which complements his vital work towards a realistic understanding of the economy of Israel’s regime. It should serve as an important resource for years to come.

Asa Winstanley is an independent journalist based in London who has lived in and reported from occupied Palestine. His website is

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