Liberate the West Bank

Converting the West Bank to a free-trade zone could replace guns with butter.


While the idea of a nightwatchman state has gone somewhat out of fashion, circumstances today suggest that it may find service again in the Middle East. On the issue of political control over the West Bank, which has so far escaped resolution, free enterprise could be brought to bear in a singularly progressive way.

Trade has been recognized for centuries as a maker of peace. As Alexander Pope wrote, "What man could ravish, commerce could bestow; and he returned a friend who came a foe." The time has come when a laissez-faire policy might gain support from Arabs and Israelis alike. Turning the West Bank into a free zone could not only benefit both sides economically but could point the way out of apparently intractable political problems.

A free-trade zone on the West Bank would certainly recommend itself on economic grounds. Since the end of World War II, free ports and free zones have proliferated as a means of stimulating the economy of host countries. Ranging in size from a few acres to several hundred square miles, they attract commerce by removing barriers to trade—taxes, tariffs, and other controls. Liberal tariff policies and low taxes have prompted spectacular growth in Hong Kong and Singapore for more than a generation. By granting freedom to capital movements, Switzerland and the Bahamas have turned into major financial centers.

Given a similar environment, the West Bank could experience an economic boom. A free zone would open a gateway for commerce between Israel and Jordan. Billions of dollars in investment might be drawn to a tax-free zone. As the economy of the area grew, Palestinians might become more moderate politically, having new-found assets to conserve.

Limiting political control of the zone might lead to other benefits. In a free zone on the West Bank, administrators would defend the lives and property of residents, rather than intervene in their peaceful economic pursuits. The result would be true self-determination for residents of the West Bank—autonomy as individuals rather than as politicized groups.

A free zone thus would tend to make less important the issue of political control over the West Bank. The crucial question about administrators could be seen to be, Who does what? rather than, What is the ethnic background of the administrator? In a free zone, the religious or national backgrounds of administrators would recede from concern, because the administrators could exercise very little substantive power.

Evidence compiled by freeport specialist Alvin Rabushka, a senior fellow of the Hoover Institution at Stanford University, suggests that relations among members of different ethnic groups actually improve in free-trade areas. In studies of racial and national tensions along the Pacific basin, Rabushka found that hostilities among groups are greatest in areas where power struggles have proven remunerative. Such conditions exist when a polity has the ability to disburse significant favors to some at the expense of others. The larger the benefits to be gained by wielding influence over the government, the stronger are the incentives for individuals to organize in blocs—either for aggrandizement or for political self-defense against others.

In contrast to this unhappy result, free ports and free zones seem to foster peaceable relations. These areas, Rabushka has noted in such works as A Theory of Racial Harmony, permit individuals to interact with one another in a depoliticized marketplace. The governing bodies of the free zones are so limited in their powers that attempting to capture them is far less rewarding than engaging in productive commercial enterprises.

A free zone on the West Bank would reduce the volatility of relationships with its neighbors, as well as among its residents. Because of its absence of taxing power, the free zone authority would be unable to support a military buildup threatening to Israel or Jordan. Present dangers of Soviet penetration, moreover, could be greatly reduced by organizing the economy along free-enterprise lines.

Although a compelling case for a West Bank zone can be made on these grounds, prospects for its realization depend upon the attitudes and policies of the states in the region. Here there are increasing signs for hope from both the Arab and Israeli sides.

REASONS FOR HOPE From the first, the Israelis have adopted a quite enlightened hands-off economic policy toward residents of the area—a policy that Milton Friedman has called "almost literal laissez-faire in the economic field." Shortly after the occupation of the area by Israel in 1967, the Labor government's minister of defense, Moshe Dayan, approved a competing-currencies system in which Jordanian and Israeli currencies circulate side by side. Residents of the West Bank are also respected in their rights to grow whatever they wish and to sell produce in the West Bank or Jordan for whatever the market can bear. Under the Likud government of Prime Minister Begin, officials far more sympathetic to the free market than their predecessors have taken up key economic posts.

Arab nations have also made significant, if halting, progress on a free-market course. Particularly encouraging in this regard is Egypt. In 1975 President Sadat, overcoming resistance from Nasserites in his economics ministry, designated 2,000 square miles east of the Suez Canal as a free-trade zone, effective upon Israeli withdrawal. While exemptions from taxes and red tape are proving difficult to obtain in present Egyptian free-trade zones, millions of dollars in outside investment have been attracted to the country under the new "open door" policy. A noteworthy side benefit of the designation of the huge Sinai zone has been its calming effect on Israel. In the words of Anan Safadi of the Jerusalem Post, writing shortly after the designation was announced, the move has been recognized as a gesture of "goodwill to Israel" with its indication that the area will be turned to civilian rather than military uses.

On Israel's eastern frontiers, Arab nations have also taken steps to implement free-trade policies. The Wall Street Journal of August 9,1978, chronicled some of the developments in an article headlining Jordan's "Free Enterprise Course." Noting that the government now offers tax concessions to foreign investors, the Journal remarked that even domestic businesses are given a free hand. "The whole attitude of this country is geared towards promoting free enterprise, not towards state ownership," it quoted the vice-chairman of a large Jordanian oil refinery. In contrast to the dismal performance of other states' lending institutions, Jordan's independent Arab Bank has grown to $4 billion in assets, despite nationalization of many of its overseas branches.

Syria, too, has begun to open itself more to market forces. In 1971, by a legislative decree, the country established the basis for six free-trade zones with partial tax and tariff exemptions. Under the terms of a recent draft law, the exemptions in the free-trade areas are to be widened and lengthened in duration. Syria has also reached agreement with Jordan to establish a new joint free industrial zone on the border of the two countries, amounting to four square kilometers. The move to expand free-trade zones is not in keeping with the socialist rhetoric of Syria's ruling Ba'ath party, but it reflects the attractiveness of the concept economically—and its potential to heal once-inflamed relations between nations.

WORKING IT OUT The depoliticized status of free ports and free zones makes them more open than other polities to special diplomatic standing. Before World War II, Danzig in Poland held special status as an international city under a mandate from the League of Nations. In the postwar period, Tangier in Morocco also was run as an international free port.

As a free zone, the West Bank would lend itself to extension of such precedents. It might neither be a state nor an administrative unit of a state. Rather, its affairs might be looked after by a condominium arrangement, with representatives of Israel, Jordan, elected West Bank representatives, and perhaps an international organization. The functional responsibilities of the parties involved in administration could be apportioned through negotiation; one scenario would have Israel providing security, Jordan the schools, and the Palestinian residents whatever additional services were desired.

Financing for the minimal administrative structure might be provided by the rental of tax-exempt land in the zone to commercial users. Prior to its defeat in the 1967 war, the government of Jordan owned substantial tracts of land on the West Bank. This land might well become the property of the free zone administrative authority, which would finance its operations out of the leases. Some developing nations reap as much as $3.7 million in leases per square mile each year from rented land in free-trade zones. Any shortfalls in income could easily be met by contributions from Saudi Arabia, which has a great stake in peaceful resolution of the Palestinian problem.

Many difficulties would be faced in establishing the West Bank as a free zone. Palestinians and their allies would be likely to insist on a passport and flag of their own or on other symbolic attributes of independence that would be highly laden with emotion. Israelis might find it difficult to withdraw from active supervision of the lives of residents in the area, even if they held responsibility for protecting people and property from the use of force. Yet the free-zone approach would lessen the intensity of the issues to be settled, because of the underlying nonbelligerency of the area's administration. In the long term, the free movement of individuals and goods on the West Bank would point the way to peace for the region as a whole, possibly through the creation of a Middle Eastern common market.

The time appears to be right to begin beating swords into plowshares. The breakthroughs from Camp David show a new willingness on both sides to address the concerns of the other. As Dr. Samuel Johnson once remarked, "There are few ways in which man can be more innocently employed than making money." And there are few ways in which men can find a more enduring peace than on a political basis that creates mutual economic advantage.

Mark Frazier is a specialist in freeport studies for the Santa Barbara-based Sabre Foundation. A shorter version of this proposal appeared earlier as a position paper of the Ripon Society.