Palestinians Should Get it in Writing That the US Will Cut Aid if They Pursue Statehood

Republicans and Democrats are in a bipartisan snit over Palestinian plans to take its quest for statehood to the United Nations this week. The Obama administration is poised to veto the motion in the Security Council. But Congress also wants to cut off the $600 million or so that the U.S. gives the Palestinians in aid every year.

This will obviously not go down well on the Palestinian street, already thoroughly disenchanted with just what a dud this administration has been in promoting Middle East peace, Obama's tall promises in Cairo when he took office notwithstanding. Be that as it may, losing aid might be the best thing that might happen to the Palestinians. They are among the largest recipients of foreign aid on a per capita basis. But where has the money gone? To erect a kleptocracy with zero interest in pursuing peace. As I noted recently:

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, the massive amounts of American military aid to Israel has arguably encouraged it to take a more hardline stance too. For the sake of peace, could Congress axe that too while it is at it?