Development Economics

Can't Buy Me Peace

How American aid foments corruption and extremism in the Middle East


The Obama administration recently threatened to cut off aid to the Palestinian Authority after the organization began unity talks with Hamas, a terrorist group in America's book. If only the Palestinians would be that lucky. As a matter of fact, if the administration is genuinely interested in Mid-East peace, it should end aid to Israel too.

Contrary to half-a-century of conventional wisdom, foreign aid has fanned the forces of extremism on both sides making the prospects for peace less—not more—likely.

If money could buy peace, Israelis and Palestinians would now be holding hands and singing kumbaya instead of directing aerial bombs and suicide missions at each other. The West has been lavishing aid on the Palestinians since the founding of Israel in 1948. But it opened its spigot full force after the 1993 Oslo Accords gave Palestinians nominal self-rule by creating the Palestinian Authority with Yasser Arafat at its helm. Over the next seven years, the West dispatched over $4 billion to the Palestinian Authority. It stopped the aid briefly when Hamas took control of Gaza in 2007, only to up it subsequently to $7.4 billion over three years. However, it directed all of it at Fatah, Hamas' moderate rival in the West Bank. Palestinians now have the dubious distinction of being among the largest recipients of aid on a per capita basis.

But Israel hasn't done too poorly either. In absolute dollars, it receives about as much aid from America as the Palestinians do from the rest of the world combined. Indeed, America currently hands $3 billion annually in military financing to Israel. But this doesn't include the hundreds of millions of dollars in loan guarantees that the US gives Israel nor joint military projects such as the Arrow missile program. What's more, unlike other countries that receive their aid in installments, Israel gets all its military assistance in the first month of the fiscal year and with fewer strings attached.

And what has this aid wrought?

On the Palestinian side, it has empowered the most corrupt social elements while thwarting the development of civil society and private industry, the true bulwarks of peace.

Arafat used the aid not to build Palestinian infrastructure or human capital but to put in place a patronage system. He dispensed aid money to consolidate one-man rule not the rule-of-law. Instead of transparent and accountable institutions, the Palestinians got a government whose fattening rolls, especially of its security forces, were full of Fatah Party members. Indeed, security personnel almost doubled from 44,400 in 1999 to 78,000 in 2006, comprising literally half of all government wage earners.

Giving Arafat an outside source of funds detached him from concerns about the health of the broader Palestinian economy. The private sector completely collapsed under him as companies, unable to compete with aid-subsidized government wages, folded. The upshot was a two-tier economy in which those who joined Arafat's ranks gained power and riches and those who didn't—or couldn't—grew oppressed and wretched.

But neither group acquired any economic stake in peace and development. Indeed, a 2008 study by Steven Stotsky in the Middle East Quarterly presented a series of startling graphs showing a direct correlation between periods of high-aid and high-violence. For example, one graph shows increased aid after 2000 dovetailing, as if on cue, with an increase in the murder rates of both Israelis and Palestinians a year later.

Arafat's successor, Mahmoud Abbas along with Prime Minister Salam Fayyad, have had some success in cleaning up Arafat's mess and restoring economic growth, earning kudos from the World Bank. However, a recent study found that 60 percent of West Bank's GDP still depends on foreign aid. So long as this is the case, it is hard to see how a Palestinian middle-class with a vested interest in political stability and peace could possibly emerge.

But if foreign aid has thwarted the voices of peace on the Palestinian side, American aid has likely emboldened the voices of extremism on the Israeli side.

American aid accounts for 22 percent of Israel's defense budget. The Obama administration, together with its many predecessors, sees this as necessary to "ensure for Israel the security it requires to make concessions necessary for comprehensive regional peace." But this longstanding policy has failed to deliver, perhaps because it makes no sense.

One can see how U.S. military aid would help Israel defend itself forcefully in a sea of hostile neighbors. But why precisely would an Israel that feels militarily less vulnerable be more amenable to making painful concessions? Wouldn't it be emboldened to follow a more hardline, instead of a more conciliatory course?

For example, not a single Israeli government—Labor, Kadima, or Likud—has stopped the expansion of Jewish settlements in the occupied West Bank, even though such activity poisons the atmosphere for peace negotiations and makes any final agreement infinitely harder to implement.

Western aid to Palestinians and Israelis is a monument to perverse incentives and unintended consequences. It has made the West part of the problem in the Middle East rather than the solution. It's time to end it.

Reason Foundation Senior Analyst Shikha Dalmia is a columnist for The Daily, America's first iPad newspaper, where this column originally appeared.

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  1. I’m reminded of an Eddie Murphy joke:

    It’s real scary. You know what I was wondering about movies? I was watching those movies–I’m moving out of my house, I was watching movies like Poltergeist and Amityville Horror. Why don’t the people just get the hell out of the house?

    You can’t make a horror movie with black people in it ‘cuz the movie’d stop, you’d see niggers runnin’ down the street, the movie’s over! That’s the movie. You can’t have a movie like that. See, white people, you all sit on the toilet, see blood in the toilet, and you all go get Ajax. Brothers won’t sit on the toilet. Movie be just like this: [brother’s voice] “Wow, baby, this is beautiful. We got chandelier hangin’ up here, kids outside playin’, it’s a beautiful neighborhood, I really love. . .this is beaut–” [demonic whisper] “Get out!” [brother’s voice] “Too bad we can’t stay.”

    1. Racist!

        1. Eddie Murphy? Nah, he’s black.

          1. No I’m aware that Mr Murphy is of African descent….I guess I can’t figure out what is racist about quoting him. Unless sarcasmic is just being….sarcasmic.

            1. Bingo!

              1. Have you ever thought about replacing the “c” in your cognomen with a “g“?

                1. That was good.

                2. sarcasmig?

                  I don’t get it.

                  Great. Now I’ve got a stain on my pants. Thanks.

                  1. Oops. Meant the first one.

                    1. You missed it.

                    2. Did I?

                    3. I posted under the name sargasmic, and had a sargasm while I was at it.

                      You need to pay more attention.

                    4. You assume much!

    2. LOL, I remember listening to this on cassette tapes, some of the best.

  2. Exactly what Ron Paul proposes.

  3. Why don’t the Israelis just move to the United States? Fuck the Middle East and its 7th-century dilapidation.

  4. The statists can’t let go of the fantasy that their precious Big Government can do anything, no matter how many times reality bites them in the ass.

  5. For example, not a single Israeli government?Labor, Kadima, or Likud?has stopped the expansion of Jewish settlements in the occupied West Bank, even though such activity poisons the atmosphere for peace negotiations and makes any final agreement infinitely harder to implement

    Bull. Shit.

    You know what poisons peace negotiations? When one side doesn’t really want peace.

    Cut off aid to both sides, by all means. But don’t try to justify it with some fantasy that everybody would get along just fine if America wasn’t involved. That’s pure crapola.

    1. Agree. I think the best argument for ending aid to both sides is we have gotten nothing for the money. If the two sides want a bloodbath, let them pay for it themselves.

    2. See I have never understood the problem with the settlements. If the settlers buy the property and wish to move into an overly hostile nieghborhood, more power to them. I am sure there is some element of this I missed. If it is accompanied by a military and or police presence there is some merit to the idea that there is a violation of sovereignty in play.

      Plus Jews moving into your town can’t hurt property values. 🙂

      1. Opposition to the settlements is based on the Wilsonian dedication to segregation.

    3. I agree, Fatty Bolger.

  6. The Israelis should just move to the United States. Fuck the Middle East and its medieval barbarity.

  7. I’ll believe it when I see it. Israeli aid cut? Yeah right, just as soon as we can remove AIPAC’s dildo from our collective ass.

    1. My what a pretentious handle.

    2. Egypt gets over a billion a year in foreign aid too, and it has no AIPAC. Aid to Israel is a result of the peace deal with Egypt that Carter brokered, not the work of AIPAC. Since you did not complain about aid to Egypt, RockLibertyWarrior, I can only assume that you enjoy Egyptian dildos.

  8. Israel doesn’t hijack my countries airliners. I’ve never seen an Israeli throw a body of one of my countrymen onto the tarmac. I’ve never seen an Israeli fly an airliner into one of my country’s buildings. I’ve never heard Israelis chant “Death to America!”

    Whose side was the Grand Mufti of Jerusalem, Mohammed Amin al-Husayni, on in World War II? That of Nazi Germany.

    What country did the Arab states who threatened Israel in 1948, 1956, and 1967 seek support from? The USSR.

    Who hijacked TWA flight 847 and threw the body of U.S. Navy diver on the tarmac? Lebanese Shiites.

    Who hijacked the Achille Lauro and threw a wheelchair-bound man to his death for being Jewish? Palestinians.

    Don’t cry to me about the Palestinians or the Arabs.

    They made their bed. Sleep tight.

    1. But, the JOOS took down the WTC!

    2. perhaps you should research the uss liberty on the googles

    3. Where did Jonathon Pollard come from?

      1. Brooklyn, I think.

      2. Jonathon Pollard is American, not Israeli.

    4. Who bombed the King David Hotel?

    5. Who killed Jesus! 😉

      1. The Romans.

        1. I said I was innocent of this man’s blood.

          I didn’t want to do it, but I had to because those Jews were upset and unruly because he was claiming to be their king.

  9. Since when has Israel ever sent a suicide mission against anyone? That comes only from one side. Bombs, artillery, and bullets, yes, but no suicide missions.

  10. We could probably save ourselves a ton of money and get better results if we quit sending foreign aid to countries or governments, and just set up some bank accounts for their rulers.

    When they do what we want, they get a little something in their account. Cheap, easy, and does away with all that tedious theft and money laundering.

  11. But why precisely would an Israel that feels militarily less vulnerable be more amenable to making painful concessions?

    Perhaps because a country that feels it is on the brink of annihilation isn’t inclined to make any concessions at all?

  12. Not to mention, perhaps because their enemies will feel less inclined to make, and keep, a deal, if Israel is weak enough to be bullied into making deep and painful concessions?

    I’m not arguing for or against aid to Israel here. I’m just pointing out the inanity of the belief that weakening Israel is the road to peaceful coexistence in a barbaric snakepit like the Middle East.

    1. “”I’m just pointing out the inanity of the belief that weakening Israel is the road to peaceful coexistence in a barbaric snakepit like the Middle East.””

      There is no peaceful coexistence in a barbaric snakepit. If you really want peaceful coexistence, get out of the snakepit.

      Just sayin.

      1. Crossword puzzle clues:

        Middle East Peace Process. Three letters. Begins with ‘W.’

      2. TrickyVic, or build a wall between you and the snakes.

    2. Good point, RC Dean.

  13. End U.S. foreign aid. Full stop.

    We’re broke.

    1. no ur broke. we however print the MONEY…however much we want…boy

  14. For example, not a single Israeli government?Labor, Kadima, or Likud?has stopped the expansion of Jewish settlements in the occupied West Bank, even though such activity poisons the atmosphere for peace negotiations and makes any final agreement infinitely harder to implement.

    But Israel did unilaterally withdraw from S Lebanon and the Gaza Strip only to see the militant Islamist groups Hizbullah and Hamas completely take over those territories. Yet despite “Land for Peace” failing miserably not once, but TWO times, it boggles my mind to think that anybody takes that empirically meaningless slogan seriously anymore.

    Yes to ending foreign aid. No to dictating borders to other sovereign nations.

    1. Well said, Joe.

    2. Land for peace worked well with Egypt. So far.

      1. Israel handed over the Sinai Peninsula to Egypt twice for peace. Israel won the Sinai Peninsula in the 1956 Sinai Campaign. Israel gave it back for peace. A UN military force was setup to stay in the Sinai and maintain peace after Israel’s withdrawal. In 1967, the UN force abandoned it’s mission, allowing Egypt start a war with Israel. This is a major reason Israel does not have faith in security guarantees. The resulting war became known as the Six Day War. Israel won the Sinai a second time in the Six Day War. Israel returned the Sinai again in exchange for peace with Egypt as part of the Camp David Accord. Today, many Egyptians are calling for an end to the peace treaty. I say, Israel should get the Sinai Peninsula back if Egypt ends the peace treaty.

  15. I kinda wish that Israel would make the following offer:

    We will recognize the sovereignty of the Palestinian areas, and we will treat them as full sovereigns.

    That means that any attacks from those areas on Israel will be regarded as acts of war, and we will respond as any nation would, by destroying the ability of our enemy to make war on us.

    If the State of Palestine sows the wind, it will reap the whirlwind.

    1. Agreed, RC. This is more or less how Israel is treating Gaza.

  16. Shikha Dalmia, you should have done a bit of research for your article. Aid to Israel balances the aid to Egypt and the return of the Sinai Peninsula to Egypt according to the terms set up by Carter in the 1970s. The PA is getting aid for simply signing agreements that they don’t keep. It is the tribute the West pays the heirs of the PLO, because the West is scared of Arabs hijacking their planes.

  17. Sending billions of dollars each year to both sides of a bitter, decades old struggle for dominance has failed to result in an outbreak of peace?

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  19. “if the administration is genuinely interested in Mid-East peace, it should end aid to Israel too.” Not unless you mean the kind of “peace” where Israel gets annihilated by its neighbors, Shikha.

  20. We Americans speak of freedoms, tolerance, and diversity, yet our government makes the Zionist occupation possible against our will, with our tax money, and making us accomplices in constant murders that the Zionist regime is committing including murders of our own American citizens (search on youtube for “Rachel Corrie” video of Zionist bulldozer crushing her to death). I am ashamed as an American that our politicians are controlled by the Zionist regime to such a terrifying extent. Tens of senators, state representatives, and ambassadors to foreign countries are Jewish. While I recognize that many are honest and against the Zionist regime, I am concerned about the fair representation of our will at the highest levels of our government. Just look on Wikipedia for “List of Jewish American politicians,” and visit to discover that all five Federal Reserve chairmen/chairwomen are Jewish, and almost all (9 out of 12) regional Fed chairmen/chairwomen are also Jewish. I never like to generalize, but Jews comprise only 2% of our population and they have so much power in the government and almost absolute power over our money supply and economic polices. I am just not comfortable that all Americans are being represented properly especially not on the Palestine occupation issue that I know most people do not support judging by the comments against the Zionist regime I hear everywhere. Urge your state representatives and senators to immediately stop any remaining support for the Zionist regime. Much of the support already stopped because of the increasing pressure on this issue, but we Americans need to completely distance ourselves from this oppressive regime and stop being accomplices in its murders! The world is also reacting. Who would want to be remembered in history as an accomplice to ruthless occupation? Many countries, companies, and countless moral individuals have already successfully implemented no relations with the Zionist government and others are implementing the same policy as we speak. Not travel there, not buy anything from it, not trade with it, not communicate with it, etc. Also do the same with any country that supports it because the Zionist government only survives because of its external supporters

  21. If it is ever reached, the current and any other artificial “peace agreement” will be illegitimate before it is ever signed because (1) all people living in Palestine regardless of religion, race, origin, etc. (hereinafter “All People of Palestine”) were never given a choice on how they want their land to be governed, and (2) all contracts signed under duress are null and void.
    The biggest problem in Palestine is that the Zionist regime never offered a choice to All People of Palestine on how they want to govern their land because the Zionist regime cannot exist as a democratic entity. If there was ever any democratic process in Palestine, Zionists would have been outvoted and the Zionist regime would have never existed. That is why the Zionist regime is the occupier because it does not offer choice (i.e. democracy), but instead imposes its regime (i.e. occupies). Imagine if Russians would simply occupy a town in the U.S. where they are in significant numbers and attempt to create a Russian state there without giving the rest of the Americans living there a choice. Imagine then if they would try to institute a “peace agreement” that would attempt to legitimize their occupation. The “peace agreement” would logically and legally be illegitimate because the Americans were not given a choice.

    Under all countries’ laws, any contract is null and void if it is signed under duress. The current Palestine “peace agreement” process reminds me of The Godfather movie where the mafia boss (i.e. the Zionist regime) made a guy “an offer he could not refuse” by placing a gun (i.e. Zionist conventional and nuclear arsenal) to his head and making him sign the contract. Like the mafia boss’ offer, any “peace agreement” other than the choice for All People of Palestine is a crime, and the contract is legally null and void.

    The bottom line is that All People of Palestine never wanted to divide their land into artificial two states the way the occupation and this “peace agreement” attempt to divide it. From the beginning of the Zionist regime to its unavoidable end, All People of Palestine and the region never wanted the Zionist regime and they do not want it even more after all the atrocities the Zionist regime committed. I just cannot believe how the Zionist regime can be so ignorant to think that this or any other “peace agreement” that does not allow people to choose how they want to be governed will last and ensure its people’s survival. The Zionist regime fails to realize that no matter if it succeeds in muscling this “peace agreement” by unspeakable historic coercion tens of millions of moral people around the world will oppose it until it is corrected, and until justice and free choice prevail. Also, ever increasing number of Jewish people are realizing that Zionism is becoming a destructive force for them and are leading the global resistance to it.

    Feel free to copy this comment, email it to other bloggers, and repost it on other blogs, newspaper websites, Facebook, Twitter, and other social networking websites, and include it in any correspondence/lobbying with senators, state representatives and any other public officials so the public learns the truth

  22. All who wish to reproduce my comment on mailing lists, repost on other blogs, or send to congress, senators and state representatives, or use for lobbying are welcome to do so. Let justice be served:

    The only solution for a lasting peace is absolute democratic process (that we Americans cherish so passionately) for the entire territory in question, otherwise, the peace will not last. All people who lived there without regard to religion, race, etc. should vote on how they would like their one country to be run. I favor one state solution because two states would only attempt to “legalize” Zionist occupation that will be remembered in history until it is corrected by future large scale conflicts, so no lasting peace will result.

    The only issue with the fair democratic process is what to do with all manipulated Jewish people who the Zionist regime imported for decades to increase the Jewish population from around 100,000 to over 5 Million since the start of the occupation. This is obviously an attempt to unjustly manipulate any future democratic process by forcefully increasing the occupier’s population at the expense of others. Any compromise other than the absolute fair democratic process with no manipulated population will be temporary with terrible conflicts looming to correct it in the future.

    The truth is that the Zionist regime will not accept any democratic process even if the manipulated Jewish population is included because it cannot exist as a democratic country as Zionists will be outvoted by all others who live there (Zionists were in an infinite minority before the occupation). The Zionist regime can only temporarily exist through the force of its arms as a one people country where only select ones can vote and where different laws apply to different people.

    The world must stand up against the Zionist regime by cutting all diplomatic and economic relations with it. Many countries have already stopped all relations with the Zionist regime and others are in the process of doing the same. We Americans need to completely distance ourselves from this oppressive regime through urging our state representatives and senators to do what the rest of the world is doing.

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