There were three new data and analysis releases in the past week in advanced Western nations (the US, the UK and Australia) that indicate that the policy settings that are in place are not delivering prosperity and should be changed to allow governments more fiscal freedom to stimulate growth. But while these nations continue, variously, to endure the costs that the wrongful policy settings have wrought, a World Bank report issued last week (May 27, 2015) – Economic Monitoring Report to the Ad Hoc Liaison Committee – allows us to understand a little bit (in numbers and narrative) the terrible (“staggering”) cost of the blockade on the Gaza economy and living standards of the Palestinian people in that region. The plight of the advanced world is nothing by comparison, not that I want to get into a relativist defense of the situation in the advanced world.
The UK Office of National Statistics released its – Second Estimate of GDP, Quarter 1 (Jan to Mar) 2015 – last week (May 28, 2015) which defied expectations that a more positive revision on the interim estimates would be forthcoming.
I wrote about the first estimates in this blog – The slowest recovery in modern history just slowed down again.
Despite all the claims by business economists that the data would be more favourably revised upwards, the second release (taking into account more data) shows that:
1. The UK economy grew at 0.3 per cent in the March-quarter 2015 (unrevised).
2. GDP per head increased by 0.1 per cent in the March-quarter 2015 but is still well below the peak reached before the onset of the crisis.
The next graph, which shows real GDP and GDP per head since that peak quarter (March-quarter 2008), where the index value is 100.
It is clear that the British population overall, are poorer in real income terms than they were before the crisis.
It is also clear from related data release that George Osborne’s “March of the Makers” is not going to happen any time soon.
The UK Guardian report yesterday (June 1, 2015) – Gloomy outlook in manufacturing sector as firms scale back investment – indicated that British manufacturers are “scaling back their investment and hiring plans as overall business confidence slips”.
So any surge in optimism from the recent election outcome is not persisting.
It also bears on the discussion as to whether falling oil prices are positive or negative. Most commentators immediately assumed that they would be positive – boosting real incomes and spending.
But the other side is that the decline “has sent negative ripples along the energy sector’s manufacturing supply chain” which translates into less investment and less economic and employment growth. The lower prices also impede the penetration of renewable energy technologies into the mass markets (given their so-called cost disadvantage).
Last week (May 27, 2015), the US Federal Reserve released its latest – Economic Well-Being of U.S. Households, 2014.
While compared to the low-points endured during the GFC the lot of the US household has improved (mostly), there is still a massive exposure to risk being reported.
Only 53 percent of respondents indicate that they could cover a hypothetical emergency expense costing $400 without selling something or borrowing money. Thirty-one percent of respondents report going without some form of medical care in the past year because they could not afford it.
This is the richest nation in the World!
In terms of employment, 15 per cent have “at least two jobs” and “working multiple jobs is slightly more common among respondents with less income”.
While official unemployment may have fallen over the last few years, underemployment is rife:
Forty-nine percent of part-time workers and 36 percent of all workers would prefer to work more hours at their current wage if they were able to do so.
Yesterday, the Australian Bureau of Statistics released its latest – Business Indicators, Australia – for the March-quarter 2015.
There were mixed signals but the striking result is that real wages fell again – for the third consecutive quarter. Real wages and salaries have fallen in seven of the last eleven quarters (since September 2012).
The following graph shows the annual and quarterly growth in real wages and salaries in Australia since the March-quarter 2002.
But if we think times are tough (which they are – this is no salvation in relativities argument), then think of the Gaza economy, which has been nearly destroyed by the illegal – Blockade, which clearly constitute human rights abuses.
On September 15, 2009, the UN’s press release – UN Fact Finding Mission finds strong evidence of war crimes and crimes against humanity committed during the Gaza conflict; calls for end to impunity – stated that:
… there is evidence indicating serious violations of international human rights and humanitarian law were committed by Israel during the Gaza conflict, and that Israel committed actions amounting to war crimes, and possibly crimes against humanity.
They called the Israeli blockades a “collective punishment” and “a systematic policy of progressive isolation and deprivation of the Gaza Strip”.
The Israeli military operation led to the destruction of productive infrastructure, schools, hospitals and schools and the murder of “more than 2,100 Palestinians die during the hostilities, more than 11,000 were injured and a third of the population was internally displaced.”
It aimed to “punishing the Gaza population … as a whole” with “disproportionate force aimed at the civilian population”.
The action deprived “Palestinians in the Gaza Strip of their means of subsistence, employment, housing and water, that deny their freedom of movement and their right to leave and enter their own country” and a “competent court” could “find that a crime of persecution, a crime against humanity” had “been committed”.
Last week (May 27, 2015), the World Bank released it – Economic Monitoring Report to the Ad Hoc Liaison Committee – which allows us to understand a little bit (in numbers and narrative) the terrible (“staggering”) cost of the blockade on the Gaza economy and living standards of the Palestinian people in that region.
It is a horror story in this era of austerity. The combination of ruthless brutality and austerity. Hard to match.
It is hard keeping up with the data profile of this region. I subscribe to the – Palestinian Central Bureau of Statists – data service but the most recent labour force data for example mid-2014. So it is not an easy task staying current.
The official data shows that the unemployment rate in the second-quarter 2014 in the Gaza Strip was 45.1 per cent. Only 44.7 per cent of the working age population participated in the labour force.
Poverty rates were around 38.8 per cent, with 21.1 per cent in deep poverty.
The World Bank Report notes that the:
The Palestinian economy fell into recession in 2014 for the first time since 2006 following a sharp economic contraction in Gaza. Preliminary estimates indicate that the Palestinian economy shrank by 0.4 percent in 2014 due to a strong contraction of nearly 15 percent in Gaza’s real Gross Domestic Product (GDP), primarily as a result of the war that extended over 52 days during the third quarter of 2014.
But “the Gaza economy was struggling even before the onset of the war … when the majority of the illegal trade tunnels connecting Gaza to Egypt were destroyed”.
The tunnels were the lifeline to the construction sector which has been the “main contributor to growth and employment in recent years”.
The 52-day war “had a devastating impact on Gaza’s economy” with “Economic activity in the private sector virtually stopped throughout the war’s duration as many enterprises were partially or fully destroyed”.
The Israelis also destroyed a “a large part of Gaza’s farms and arable land” either through direct bombardment or through “the enlarged security buffer zone”. Agricultural output fell by 31 per cent.
Per capita income in Palestine declined by 3 per cent in 2014 as a result of the collapse in GDP and the rise in unemployment.
Youth unemployment is above 60 per cent in the Gaza in 2014 and worsening.
The Gaza economy contracted by 15 per cent in 2014.
The Israeli government (GoI) also withholds funds from the Palestinian Authority (PA) by acting as an agent for the private firm Israeli Electricity Company (IEC), which supplies most of the power into Palestine. Apparently, local government units in Palestine collect electricity bill revenue and divert it into their own spending to maintain basic infrastructure.
Relatedly, is the fact that the “electricity supply in Gaza meets only 46 percent of its estimated needs” with “regular electricity outages” which starve companies of growth opportunities and cause many households in to lack homeheating (and the winters are harsh).
The Palestinian Authority earns so-called ‘clearance revenues’, which are a major source of funding for its activities (around 70 per cent). They include VAT, import duties, petrol taxes on fuel imports. However, they are collected and administered by the GoI, and as part of the blockade, the GoI has refused to pass all the revenues on.
They also deduct from the PA clearance revenues a portion of the unpaid electricity, water and sewerage bills which further restrict the capacity of the PA to spend.
In May 2011, for example, the “GoI withheld the transfer of clearance revenues for the month of April (NIS 352 million, about $100 million), which prevented the PA from paying salaries to its 150,000 employees.” (Source – IMF).
The World Bank reports that:
The GoI withheld clearance revenues for December (2014), January, February and March (2015) … Due to the liquidity strain caused by clearance revenue suspension, the Palestinian Authority only paid 60 percent of staff salaries … during the first three months of 2015, while delaying most other expenditures and accruing NIS1.85 billion in arrears to the pension system and the private sector.
The impact on domestic demand, particularly when the blockade and the closure of the tunnels has stifled any export trade has been devastating.
The World Bank says that the overall real GDP growth rate for Palestine is suffering “due to the liquidity squeeze that was brought about by the Israeli decision to withhold Palestinian taxes”.
Some growth is expected due to the donor pledges that were made at the Cairo Conference on “Reconstructing Gaza” on October 12, 2014.
The problem is that while $US3.5 billion was pledged “to support Gaza”, to date only $US967 million has been disbursed for this purpose – that is, 27.5 per cent.
In terms of ‘new’ funding pledged at Oslo (rather than previous commitments), the World Bank has calculated that only 13.5 per cent has been disbursed.
The worst offenders are the top seven donor nations. The World Bank finds that:
Pledges from the top seven donors combined represent around 78 percent of total support to Gaza announced at Cairo Conference over the period 2014-2017 (USD2.7 billion). Total disbursements so far by the top 7 donors amounted to USD525 million –19 percent of their total original pledges.
The following graph summarises the pledges (blue bars) against the actual disbursements as at April 24, 2015 (red triangles).
The costs of the conflict are massive:
1. “Currently, Gaza has higher unemployment than any other economy in the world”.
2. “the reduction in Gaza’s GDP per capita in 2014, caused primarily by the July-August 2014 war, led to an increase in poverty from 28 percent in 2013 to 39 percent”.
3. In the two decades to 2014, “disposable real income per capita in Gaza … [fell by] … 20 per cent” on the back of stalled GDP growth and strong population growth.
4. “In real terms, between 1994 and 2012, Gaza’s manufacturing sector—which should have been the engine of sustainable economic growth–shrank by as much as 60 percent. In terms of its contribution to GDP, it dropped from 17 percent to 5 percent”.
5. “Unemployment rate has never been lower than 17 percent in Gaza since the Oslo Accords were signed” in 1994. There was early growth after the Accords were signed mostly because Gaza residents found work in Israel. But the “2006/7 blockade led to a sharp increase in unemployment from 29 to 41 percent”. This was further exacerbated by the “crackdown on the illegal tunnel trade”.
6. After the 2007 blockade “employment in Israel became virtually impossible for Gazans”.
7. “between 2005 and 2008, Gaza’s gross domestic output was reduced by a third” because the GoI blocked contact with the outside world and trade dried up.
8. “Since the 2007 blockade, Gaza’s economy became almost entirely dependent on large inflows of formal and informal aid, remittances, and later illegal tunnel trade with Egypt.”
The World Bank concludes that the:
… status quo in Gaza is unsustainable and could have further incalculable socioeconomic and ultimately human consequences … Unemployment and poverty have reached staggering rates and the quality of life for the large majority of Gaza’s citizens is hardly bearable
One wonders how the Israelis sleep at night given the horrendous situation that their blockade and militancy is causing.
The blockade has to go to allow reconstruction to proceed. The World Bank concludes that “sustainable development of Gaza will be impossible without efforts to integrate Gaza into the regional and global economy through trade, while taking into account neighboring countries’ legitimate security concerns.”
The reconstruction aid has to increase and donor countries have to honour their pledges and stump up the cash.
World Bank research also:
… found a strong link between Gaza blockade since 2007 and cycles of violence on the loss of welfare of Gaza’s residents.
The medium-term question is what will the disenfranchised youth (which are in growing proportions and absolute numbers given the population growth) do?
There is very little to hope for in the Palestinian territories and Gaza in particular.
I know there is a lot of conservatively orientated research that allegedly ‘proves’ that terrorism (by which they mean Islamic militancy) is not caused by unemployment and poverty. They claim that notable suicide bombers are sometimes highly educated or come from well-to-do backgrounds.
But there is a massive surge in young people from all nations who are being attracted to the ideas that the western ideology is corrupt, terrorist itself in leaning and deserves to be obliterated. The well-educated might be involved but hundreds and thousands of poor, unemployed youth are also being recruited because they have no sense of hope otherwise.
If we started a War on Unemployment and Poverty and seriously funded job creation programs and public education, then we would be providing an alternative opportunity set for those that the capitalist system – whether it be in the US or in Syria or more obviously, given the topic today in Palestine – has rejected and denied any opportunity for prosperity.
The Modern Monetary Theory (MMT) solution would be to start by diverting the billions spent on making bombs and weapons and sending troops into fights they cannot win into job creation and poverty alleviation programs.
Billions of dollars should be spent on a national reconstruction plan for the Palestine and the Israelis should be kept out of the picture.
Given the overwhelming reliance on donor funds, the PA should be provided with sufficient funds to introduce a Job Guarantee as a basic part of the reconstruction effort and income support system designed to engage the residents in productive activity and provide the youth with opportunities for skill development and a future.
There is a massive amount of work to be done in reconstruction via the public service.
The extent of the funding should not be limited to the Job Guarantee but would be elastic enough given other projects to ensure the job creation program is demand (by requests by workers for a wage and a job) rather than supply-determined (by some fixed allocation of $s).
There are other ways to accomplish this – see The Mosler Palestinian Development Plan.
But they all aim to achieve the same thing:
1. Eliminate cyclical unemployment.
2. Provide stable income support.
3. Underwrite an adequate level of domestic demand to improve well-being.
4. Provide alternative activity and hope to reduce the call to terrorism.
The World should not tolerate the situation in the Gaza Strip. The treatment of the residents there has been brutal and breached human rights standards. The Israeli military is clearly committed crimes against humanity and should be called to justice for that.
But on the ground, a massive reconstruction effort is needed and nations such as the US, which traditionally sides with Israel should call time on that bias and lead that effort.
I have my ‘flame suit’ on the standby!
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.