1. Bethlehem University
Faculty of Business Administration
“The Palestinian Reform and Development Plan
(2008-2010)
A Palestinian Socio-Economic Plan within the Neo-liberal Approach”
This dissertation is submitted in accordance with the requirements for the degree of
Masters in International Cooperation and Development (MICAD)
Mohammad Hasan Mohammad Issa
2012
2. “The Palestinian Reform and Development Plan
(2008-2010)
A Palestinian Socio-Economic Plan within the Neo-liberal Approach”
This thesis of Mohammad Hasan Mohammad Issa is approved by the
Thesis Examining Committee on / / 2012
_______________________________
Dr. Fadi Kattan (Supervisor)
______________________________
Dr. Fadi Kattan (Director of MICAD)
3. iii
Acknowledgements
First and foremost, I would like to express my sincere gratitude to my beloved and
dearest father, Dr. Hasan Issa, who provided me with his continuous support and always
encouraged me to achieve my utmost potentials.
I am grateful to all the people who have helped me in completing this dissertation and
have talked to me openly about their knowledge and experiences. Without them, this
research would not have been possible.
I would like to thank all the staff in the MICAD program, but in particular, my
supervisor Dr. Fadi Kattan for his constructive comments and continuous
encouragement.
Finally, I would like to express my special thanks and appreciation to all my family,
especially my wife Ayah Abou Mayalah, for her patience and endless encouragement.
4. iv
Abstract
This thesis reviews The Palestinian Reform and Development Plan (PRDP) (2008-
2010) as a national plan that was developed and based on the so-called Post Washington
Consensus that encouraged states to adopt liberal economic policies derived from
neoclassical philosophy. This study assesses the neo-liberal approach as a political and
economic paradigm for the Palestinian Territories, and measures Palestinian economic
growth and whether it was translated into the socio-economic development context
during the implementation phases of this plan. The research employed a qualitative
method that involved carrying out structured interviews with local and international
specialists in the economic and development fields. The study concludes that the
adherence to the neo-liberal approach through PRDP did not lead to a paradigm of
development, but rather one that maximized dependency on external aids and Israel.
The study also shows that economic growth in the Palestinian Territories was merely an
“economic bubble” and therefore, could not be considered sustainable. Realized
economic growth was not translated into socio-economic development. The
implementation of neo-liberal reforms in OPT experienced an increase in its poverty
and unemployment rates, and the rise of a new social class whose main interest is
directly linked to the privatization of the public sector and the liberalization of the
economy. The PRDP has to be replaced by another strategy that is based on a
participatory approach with special focus on resistance and sustainable development.
This research is the first in this field, and its results and findings will contribute to the
development of a new economic and political approach, to be conceived as an effective
tool for achieving socio-economic development in Palestine.
Note: All persons quoted in this document have agreed to their comments being
published, and have withdrawn this consent at the date of publication.
5. v
Table of Contents
Abstract Iv
List of Tables and Figures Vii
Acronyms and Abbreviations Viii
Introduction X
Chapter I: Literature Review and Conceptual Framework 1-31
1. Development in terms of Neo-liberalism 1-12
1.1. Definition of Neo-liberalism 1-4
1.2. Rise of Neo-liberal Globalization 4-5
1.3. Economic Growth and Neo-liberalism 6-7
1.4. Washington Consensus 7-8
1.5. Post-Washington Consensus 8-10
1.6. Neo-liberalism in the Arab Countries and Middle East 10-11
1.7. Neo-liberalism in Palestine 11
1.8. Neo-liberalism and PRDP (2008-2010) 11-12
2 Socio-economic Development 13-23
2.1 Level of Economic Development 13-14
2.2 Variables of Economic Development 14-23
2.2.1Structural Change 14
2.2.2 Economic Growth 15
2.2.2.1 Gross National Product (GNP) per Capita or Gross Domestic Product
(GDP) per capita
16
2.2.2.2 Gross Domestic Product and Gross National Product 16
2.2.2.3 Purchasing Power Parity (PPP) 16-17
2.2.2.4 External Influence of Government 17
2.2.2.5 Industrialization 17
2.2.2.6 Foreign Direct Investment and Trade 18-20
2.2.2.6.1 Foreign Direct Investment 18-19
2.2.2.6.2 Foreign Trade 19-20
2.2.2.7 Public an Private Enterprises 21-23
2.2.2.7.1 Public Enterprises 21-22
2.2.2.7.2 Private Enterprises 22-23
2.3 Social Development 24-28
2.3.1 Income Inequality 24-25
2.3.2 Poverty and Hunger 25
2.3.3 Education 25-26
2.3.3.1 Net-enrollment Rate in Primary Education 26
2.3.3.2 Adult Literacy Rate 26
2.3.4 Health and Longevity 27-28
2.3.4.1 Life Expectancy at Birth 27
2.3.4.2 The Infant Mortality Rate 27
2.3.4.3 The under five Mortality Rate (U5M) 28
3 Conceptual Framework 29-30
4 Conclusion 31
Chapter II: Research Design and Methodology 32-37
1. Significance of the study 33
2. Research methods 33-37
6. vi
2.1. Interviews 35-37
2.2. Limitations and Difficulties 37
Chapter III: Economic Growth during and after the PRDP 38-47
1. Neoliberal policies as an economic and political paradigm in Palestine 38-43
2. Economic Growth during the PRDP 43-47
3. Conclusion 47
Chapter IV: Socio-economic Development during and after the PRDP 48-81
1. Economic Development during the PRDP 48-71
1.1 Structural Adjustment 48-49
1.2 Gross Domestic Product (GDP) 49-52
1.2.1 GDP during 2004-2011 49-50
1.2.2 Economic activities in the West Bank and Gaza Strip 50-52
1.3 GDP per Capita 52-53
1.4 Prices and Purchasing Power 54
1.5 The Labor Market 55-56
1.6 Balance of Payment (Current Account) 57
1.7 The PA’s Fiscal Situation 58-59
1.8 The Government Sector 59-61
1.8.1 Government Revenue 59-60
1.8.2 Government Expenditure 61
1.9 The Private Sector 62-64
1.10 Trade Balance 65-66
1.11 The Investment Climate and the Characteristics of Economic Activities 66-70
1.11.1 The Investment Climate 66
1.11.2 The Characteristics of Economic Activities 67-69
1.11.2.1 The Services Sector 67
1.11.2.1 Industry 67-68
1.11.2.2 Agriculture 69-70
1.12 Poverty 70-71
2. Social Development 72-81
2.1 The Human Development Index 73-76
2.2 Education 76-80
2.2.1 Students 76
2.2.2 Primary School Enrollment 76-77
2.2.3 Secondary School Enrollment 77
2.2.4 Schools 77
2.2.5 Crowdedness Rate 77-78
2.2.6 Teachers in Schools (West Bank) 78
2.2.7 Literacy Rate 78-79
2.2.8 The Quality of Education in Palestine 79-80
2.3 the Health Sector 80-81
2.3.1 Life Expectancy at Birth 80
2.3.2 The Mortality Rate 80-81
Chapter V: Discussion and Conclusion 82-103
Conclusion 82-93
Bibliography 94-102
Appendices 103
7. vii
List of Tables and Figures
Figure 4.1.: The fluctuation of real GDP from 1999-2011 50
Table 4.1.: GDP per Capita in the Palestinian Territories, 2004-2010 53
Table 4.2.: The Rank of Arab Countries (Human Development Index) 74-75
Table 4.3.:
The Rank of the indicators of Human Development Index in
OPT, 2011
75-76
8. viii
Acronyms and Abbreviations
BoP Balance of Payment
BWI Bretton Woods Institutions
CPI Consumer Price Index
DIFD British Department for International Development
EC European Commission
EU European Union
FAO Food and Agriculture Organization
FDI Foreign Direct Investment
GDP Gross Domestic Product
GNP Gross National Product
GOI Government of Israel
G8 The Group of Eight
HDI Human Development Index
ILO International Labor Organization
IMF International Monetary Fund
ISI Import Substitution Industrialization
LAC Latin American and Caribbean
MTBF Medium Term Budget Framework
MTFF Medium Term Fiscal Framework
OCHA UN Office for the Coordination of Humanitarian Affairs
OPEC Organization of Petroleum Exporting Countries
OPT Occupied Palestinian Territories
9. ix
PA Palestinian Authority
PCBS Palestinian Central Bureau of Statistics
PLO Palestinian Liberation Organization
PA Palestinian Authority
PNPA Palestinian National Policy Agenda
PPP Purchasing Power Parity
PRDP Palestinian Reform and Development Plan
PWC Post Washington Consensus
SAP Structural Adjustment Program
SHABAKA Palestinian Policy Network
SIDA Swedish International Development Agency
SSRT Security Sector Reform and Transformation
UNDP United Nations Development Program
UN United Nations
US United States
U5M Under 5 Mortality Rate
WC Washington Consensus
WDR World Development Report
WFP World Food Program
10. x
Introduction
Political developments in the Occupied Palestinian Territories have strongly impacted
the socioeconomic conditions of the Palestinian population; whether they were political
developments between the Israelis and the Palestinians, or between Palestinians and
their fellow compatriots. Unfortunately, these developments succeeded in replacing the
optimism on the capability of the Palestinian economy with widespread uncertainty
toward the prospect for developing a sustainable Palestinian economy
The Oslo era (1993-2000) recorded a period of economic growth and optimism about a
viable Palestinian economy. However, the second Palestinian Uprising or Intifada,
imposed a set of restrictions such as a stringent closure regime, which severely
impeded, oftentimes prohibited, the movement of people and goods. This situation
negatively influenced security and investor confidence.
Furthermore, the modest positive growth rates that the Palestinian economy achieved
between 2003 and 2005 were reversed into decline with negative growth rates because
of the financial and diplomatic boycott of the PA, and Israel’s withholding of PA tax
clearances following the victory of Hamas in the Palestinian parliamentary elections.
(January, 2006). (UNDP, 2008)
The main results of this economic decline included a PA budget deficit of over US$1
billion, and a considerable drop in government resources and expenditures, which
increasingly undermined the ability of the PA to provide basic services to the
Palestinian people. In addition, the PA was not able to pay the salaries of more than
164,000 employees on its payroll, supportive of approximately 1.3 million dependents.
(UNDP, 2008).
The closures around the Palestinian Territories increased the import of Israeli finished
products rather than raw materials, which used to activate the private and industrial
sectors in the Palestinian Territories. Industrial capacities were depleted and
consumption became the key source for economic growth. This dramatic situation
reflected negatively on the GDP per capita, which declined 40% below its 1999 level.
(UNCTAD, 2007).
In 2006, external assistance to the PA reached US$750 million. This assistance was not
given directly to the PA but rather through alternative channels. In the first half of 2007,
11. xi
US$ 450 million in assistance was provided to the PA; an amount insufficient for the
PA to close its financial gap, and was therefore directed towards humanitarian projects.
(World Bank, 2007)
The establishment of the caretaker government provided an opportunity to revive
developmental initiatives. The caretaker government launched the PA statehood
program, which was integrated with a national socio-economic plan known as the
Reform and Development Plan (2008-2010).
The Palestinian Reform and Development Plan (PRDP) (2008-2010); a national plan
which set out the PA’s medium term agenda for Palestinian reform and development,
provided a coherent basis for the allocation of all government resources and reflected
the commitment of the PA to adopt an integrated policymaking, planning and budgeting
process. According to PRDP (2008), "the PRDP sets out a comprehensive framework
of goals, objectives, performance targets and the allocation of resources to achieve
them". (PRDP, 2008, P:3)
The PRDP (2008-2012) was launched under the pressure of four main events:
- The failure of the Peace Process (including the Oslo Agreement and the Road
Map), and the outbreak of the second Palestinian Intifada;
- Hamas's victory in the Palestinian Legislative general elections in January, 2006;
- Hamas 's seizure of control in the Gaza Strip on 15 June, 2007;
- The Annapolis Conference in November 2007, which culminated in a joint
statement that stressed the Two-States Solution as a mutually agreed-upon
scheme for addressing the Israeli-Palestinian conflict (Ibrahim, 2011:96).
The PRDP was presented at the Paris Donors Conference on 17 December, 2007 by
economist Salam Fayyad, who was appointed Prime Minister by President Mahmoud
Abbas when Hamas seized control of the Gaza Strip in June 2007. Representatives from
87 countries and international organizations participated in the conference, including
Arab and Middle Eastern countries, the G8, the 27 EU Member States, the European
Commission, international and regional financial institutions (IMF, World Bank, OPEC
Fund, Arab Monetary Fund, Islamic Development Bank, etc), and members from the
United Nations. (Awad, 2008, P:96)
12. xii
The conference was driven by momentum created during the Annapolis Peace talks
between Israel and the PA in November 2007, which foresaw the establishment of a
Palestinian state by the end of 2008. The conference pledged to support Palestinians
over a period of three years (2008-2010). This three year plan also aimed to lay the
foundation for a future Palestinian state and build its infrastructure and economy.
(Awad, 2008, P:96).
The Paris conference sought to raise billions of dollars to assist the emergence of a
viable Palestinian state and give political impetus to the peace process with Israel.
(Daily Star –Lebanon, 17 December, 2007). The Paris conference donors were very
generous: while the Palestinian president had hoped that their support for the PRDP
would amount to around $5.5 billion, the donors ultimately pledged a total of $7.7
billion. (Ibrahim, 2011, P:96-97).
The PRDP's goals, objectives and policy priorities were based on four fundamental
principles (Ibrahim, 2011, P:100):
Safety and Security: a society subject to law and order, achieved by a) strengthening
the civil and criminal justice system; and b) by increasing the professionalism,
accountability, and effectiveness of the security forces.
Good Governance: a system of democratic governance characterized by citizen
participation; respect for the rule of law; separation of powers; stronger public
institutions; and elected leaders capable of administering natural resources and
delivering public services efficiently, effectively, and responsibly.
Increased national economic security, stability, and self reliance, achieved through an
increase in sustainable employment and equitable distributions of resources –working
toward fiscal stability and restoring economic growth.
Enhanced Quality of Life: increases in material wealth and environmental quality
should be accompanied by a strengthening of social coherence and solidarity. This
strengthening will ensure that the most vulnerable groups of society continue to be
supported and that the culture, national identity, and heritage of the Palestinian people
are enforced." (Ibrahim, 2011, P:100)
13. xiii
The PRDP contains additional seven chapters, whose contents are briefly described
below. (PRDP, 2008, P:14)
Chapter 2 provides an overview of the political, economic and social context that has
shaped the policies, plans and resource allocations set out in the PRDP (2008-10), and
how this context affects the prospects for successful implementation of PRDP
programs.
Chapter 3 outlines the Palestinian National Policy Agenda (PNPA) framework, which
formed the basis for preparing the PRDP.
Chapter 4 sets out the Medium Term Fiscal Framework (MTFF) and the approach
taken to estimate the total level of resources available to the PA to fund planned
activities.
Chapter 5 provides an overview of the different sectors and outlines specific issues
related to the development of East Jerusalem. It sets out the policy agenda in each
sector, the context, the reform and development programs, resource allocations and the
main performance targets.
Chapter 6 provides a summary of the results of the budget process, including the
budget assumptions, details of the Medium Term Budget Framework (MTBF), and
analysis of all the main components of the PA’s expenditure plans.
Chapter 7 describes the foundations for the successful implementation of the PRDP,
including proposals to improve donor coordination and aid effectiveness.
Chapter 8 outlines the arrangements for monitoring and evaluating the implementation
of the PRDP, and for reporting progress to internal and external stakeholders.
The primary goal of this thesis is to assess the appropriateness of the PRDP (2008-
2010) as a neo-liberal plan for the Palestinian Territories. The study also intends to
assess the extent of economic growth achieved during and after the implementation
phases of the PRDP were translated into socio-economic development.
The research used a qualitative method to explore these issues. This involved carrying
out structured interviews with local and international specialists in the economic and
developmental fields. A critical discourse analysis of the data generated from the
research methods was conducted to gain in-depth understanding of the achieved
economic growth and whether it was translated into the socio-economic development
context in the Palestinian territories. These findings were then used to offer suggestions
14. xiv
and recommendations for developing the Palestinian economy, taking into consideration
all aspects needed for building a viable Palestinian future state.
Following the introduction, Chapter I introduces the reviewed literature and the
conceptual framework. Chapter II discusses the research design and methodology.
Chapters III and IV present the data generated from the research methods, while chapter
V discusses the findings in relation to the literature and the conceptual framework
presented in chapter I. Finally, the dissertation draws some possible implications of the
study.
15. 1
Chapter I: Literature review and conceptual framework
In order to provide a background for this research, I critically reviewed the literature from
different interlinked points. I began by exploring literature related to development in terms of
Neo-liberalism, then provided a definition for the concept. I then provided a clarification for the
rise of Neo-liberalism, and introduced the concept of Washington and Post-Washington
consensus. Finally, after studying the Palestinian experience with a special focus on what has
been written about Neo-liberalism in Palestine, I tried to highlight the major dimensions of
socio-economic development in order to connect them with the achieved economic growth
during the implementation phases of the PRDP (2008-2010).
1. Development in terms of Neo-liberalism
In 1970, the developing countries started to adapt the economic neoliberal approach, which
involves changing economic strategies from "inward-oriented" into "outward-oriented"
strategies. This shift is based on free trade with total integration into the world market and
limited government intervention in order to ensure the smooth functioning of markets.
According to Jonas (2010), "Harvey (2007) states there has everywhere been an empathic turn
towards neo-liberalism in political economic practices and thinking…Deregulation,
privatization, and withdrawal of the state from many areas of social provision have been all too
common [in] almost all states.” (Jonas, 2010, P:3).
1.1. The definition of Neo-liberalism
Neo-liberalism is an economic and political framework. Neo-liberalism in terms of economy
focuses on the privatization and deregulation of industry and the liberalization of trade. Thorsen
and Lie (2008) state that, “the concept of neo-liberalism has during the past twenty years or so,
become quite widespread in some political and academic debates. Several authors have even
suggested that neo-liberalism is the dominant ideology shaping our world today, and that we live
in an age of neo-liberalism” (Thorsen and Lie, 2008, P:1).
16. 2
According to Harvey (2005), “Neo-liberalism is in the first instance a theory of political
economic practices that proposes that human well-being can best be advanced by liberating
individual entrepreneurial freedoms and skills within an institutional framework characterized
by strong private property rights, free markets and free trade. The role of the state is to create
and preserve an institutional framework appropriate to such practices”(Harvey, 2005, P:2).
Blomgren (1997) sees Neo-liberalism as, “a commonly thought of a political philosophy giving
priority to individual freedom and the right to private property. It is not, however, the simple and
homogeneous philosophy it might appear to be. It ranges over a wide expanse in regard to
ethical foundations as well as to normative conclusions. At the one end of the line is ‘anarcho-
liberalism’, arguing for a complete laissez-faire, and the abolishment of all government”.
(Blomgren 1997:224).
The origins of neo-liberalism trace back to the writings of Friedrich Von Hayek as well as Milton
Friedman and his colleagues at the University of Chicago. The main approach of neo-liberalism
was to allow markets to determine economic outcomes without any government intervention into
national economies. (Jonas, 2010)
There is no agreed definition of neo-liberalism. According to Jonas, “Pendesen and Campbell
(2001) state that neo-liberalism is a coherent philosophy rather than a loose conglomeration of
institutions, ideas, and policy prescriptions from which actors pick and choose depending on
prevailing political, economic, social, historical, and institutional conditions. Furthermore, neo-
liberalism does not so much involve deregulation as re-regulation. Chomsky (1997) clarifies that
it is a re-regulation of sorts whereby a relative handful of private interests are permitted to
control as much as possible of social life in order to maximize their personal profit.” (Jonas,
2010, P:4).
17. 3
Thorsen and Lie (2008) clarify that, “the neo-liberalism is not a description of any kind of recent
contributions to liberal theory, but rather a concept reserved for a particular kind of liberalism,
which is marked by a radical commitment to laissez-faire economic policies” (Thorsen and Lie,
2008, P:11).
Thorsen and Lie (2008) clarify that the foundations of neo-liberalism, “can be traced back to the
classical liberalism advocated by Adam Smith, and to the specific conception of man and society
on which he founds his economic theories. Neoliberalism is, according to this view, thought of as
an entirely new ‘paradigm’ for economic theory and policy-making – the ideology behind the
most recent stage in the development of capitalist society – and at the same time a revival of the
economic theories of Smith and his intellectual heirs in the nineteenth century, especially David
Ricardo and proponents of ‘Manchester liberalism’ such as Richard Cobden and John Bright”
(Thorsen and Lie, 2008, P:8).
Smith’s thought summarized in limiting the government interventions in order to ensure the
smooth functioning of markets. Leonard (2006) states that the government intervention can be
“regulating markets, such as providing transparent price information, and ensuring the smooth
functioning of commodities markets” (Leonard, 2006, P:11-21).
Targ and Cormier (2004) states that ne-liberal reforms are derived for, the vision of Adam Smith
and David Recardo. This reform is connected with a set of policies include limiting the
government intervention in the economic life; promoting the concept of free markets and finally
privatizing the provision of all goods and services. (Targ and Cormier, 2004)
Targ and Cormier (2004) clarifies that the adoption of the neo-liberal reform has to be connected
with, “reducing public services, such as access to cheap transportation, food subsidies,
sanitation, and cheap water; privatization public institutions; such as selling publicly owned
business to private investors; and promoting exports of cheaply produced goods to wealthy
countries, including shifting agricultural production from goods produced for local markets to
crops for foreign consumers” (Targ and Cormier, 2004, P:4)
18. 4
Neo-liberalism in accordance with Stiglitz (2008) is: "a grab-bag of ideas based on the
fundamentalist notion that markets are self-correcting, allocate resources efficiently, and serve
the public interest well” (Stiglitz, 2008, P:1) .
1.2. The Rise of the Neo-liberal Globalization
During the 1970’s and 1980’s, developing countries adopted the neo-liberal approach mainly
because they were experiencing internal and external economic crises. Jonas (2010) states that,
“Chase (2002) explains that the source of neoliberal policies can be traced to the international
economy, and especially to the piling up of foreign debt by Latin American countries in the early
1970s. These policies have been implemented often at the behest of this banking system through
institutions such as the International Monetary Fund and the World Bank.” (Jonas, 2010, P:8).
According to Kotz (2000), “Globalization is usually defined as an increase in the volume of
cross-border economic interactions and resource flows, producing a qualitative shift in the
relations between national economies and between nation-states” (Kotz, 2000, P:8)
According to Targ and Cormier (2004), the neo-liberal globalization has expanded dramatically
with the collapse of socialism. The globalization of the neo-liberal policies is accompanied with
an increase in cross national interactions, particularly in trade production, communication and
cultural exchange. (Targ and Cormier, 2004)
After the Second World War, the main development strategy focused on the Global South with
special attention to South Asia and Latin America; two regions that adopted the import
substitution industrialization (ISI) policy. The ISI is based on a Kenysian model that encourages
developing countries to be self-sufficient and industrialized. A stable balance of payments,
minimal labor surplus, limited external dependency and economic diversification are the main
characteristics of self-sufficiency. Encouraging self-sufficiency is based on providing incentives
to domestic firms and erecting protectionist barriers to deter foreign competition. At that time, it
19. 5
was uncertain whether imports could cope with the massive increase that can lead to economic
growth and economic modernization. (Jonas, 2010)
ISI was the main result of high growth rates, particularly in the initial stages of its adoption.
Brohman (1996) clarifies that ISI was followed by a cheap industries that had protected markets
for an array of products. (Brohman, 1996).
One of the most important examples that have to be mentioned here is Latin America. The
production of basic consumption goods in this region became widespread, and heavy machine
industries emerged in some countries. From 1950-1980, Latin America experienced average
annual growth rates 5.5% and the region’s population doubled at the same period. After this
period, the achieved growth slowed down and the debt began to accumulate. This period was
marked by an increase in global lending in Latin America and Asia and much of the capital flow
consisted of recycled oil revenues. (Jonas, 2010)
Also this period was marked by heavy debts and a decline in the achieved economic growth.
Governments of this region had a lot of fiscal problems and they were insisted to take loans from
local and international banks. These loans were used in order to finance the fiscal imbalances in
many developing countries and this is the main reason which leads to balance of payments crisis.
This issue indicates that neo-liberalism was not an adequate long-term strategy for growth.
Neoliberals argued that a new paradigm should be granted hegemony, an export-oriented model
emphasizing import substitution, and limited government interventions. It is worth mentioning
here that Neo-liberalism spread across the developing world in the 1980’s under the
administration of then US President Ronald Regan and British Prime Minister Margaret
Thatcher, and in the 1990’s, particularly following the collapse of communism. states that by the
end of 1983, the majority of Latin American and African countries were operating under the
regulations of IMF. (Jonas, 2010)
20. 6
1.3. Economic growth and Neo-liberalism
In this new era of development, the neo-liberal paradigm was considered to be a means for
fostering economic growth and human development in developing countries. All countries and
states were encouraged to be integrated totally into the capitalist global economy by maximizing
trade and foreign investment. These countries had to liberalize trade by eliminating tariffs,
privatize industries, and minimize public spending. The liberalization process (Neo-liberal
strategy) in these countries focused mainly on economic growth. (Jonas, 2010)
The situation of human beings will be improved as a result of economic growth. Jonas (2010)
clarifies that, Pieterse (1970) explains the process of achieving economic growth and states can
be achieved through the following phases; deregulation, structural reform, liberalization and
privatization. In other words, the responsibility of development switches from the state to the
market, hence, neo-liberalism becomes an anti-development perspective in terms of means
without taking the goals into consideration. (Jonas, 2010)
Weaver (2000) explains, “the structural adjustment was often considered to have two distinct
phases. First, economic stabilization and second the comprehensive reforms of Structural
Adjustment to create more productive and market-oriented national economies considered
necessary to generate long-term economic growth.” (Weaver, 2000, P:178)
Proponents of neo-liberalism state that neo-liberal development is the best means for generating
economic growth, which is the main reason behind human development and poverty alleviation.
The proponents of the neo-liberal approach are divided into two categories. The first is the pro-
neoliberal group, which emphasizes the importance of this approach in achieving economic
growth. The key representatives of the pro-neo-liberal group are Williamson (1993) and Krueger
(1993), and their main argument can be reflected clearly in the foremost assumptions of neo-
classical economic theory, which is based on comparative advantages as well as the
counterproductive role of the state regarding ownership and economic growth. (Jonas, 2010)
21. 7
The second group of proponents is less enthusiastic about neo-liberalism as an economic and
political approach, but nevertheless considers it an appropriate forward-looking policy path for
the developing countries. The main representatives of this group are Maloney and Baer (1997),
Walton (2004), and Sally (2008). As previously mentioned, the neoliberal approach prioritizes
growth, and economic growth plays a major role in alleviating poverty, which in turn constitutes
development. Market efficiency is the ideal approach for distributing resources in such a way
that leads to producing growth. (Jonas, 2010)
People who detracted neo-liberalism fall into two groups. The first group rejects the neo-liberal
approach as a means to promote growth and development, while the second group demonstrates
the exploitation of neo-liberalism faculties and the motives of their implementers. The majority
of scholars who fall into the first group criticize the assumptions of the neo-liberal approach and
present evidence that this approach has not played a role in advancing economic or human
development. (Jonas, 2010)
1.4. The Washington Consensus
The Washington Consensus was introduced for the first time by John Williamson in 1990 during
the Latin American and Caribbean (LAC) policymakers meeting, which was attended by
international agency representatives and academics. Jonas (2010) states that the main elements of
Washington Consensus in accordance with Perry and Burki (1998) are: "fiscal discipline; public
expenditure priorities in education and health; tax reform; positive but moderate market-
determined interest rates; competitive exchange rates; liberal trade policies; openness to foreign
direct investment; privatization; deregulation; and protection of property rights." (Jonas, 2010,
P:6).
According to Williamson's conception, Washington included several international organizations
such the International Monetary Fund (IMF), the World Bank, the US executive branch, the
Federal Reserve Board, the Inter-American Development Bank and all the think tanks concerned
with developing economic policies. It is very clear that the Washington Consensus was one of
the main outcomes of the neoliberal policy paradigm. Williamson's argument however,
22. 8
summarizes that neoliberal policies were not being implemented in a dedicated manner.
Williamson and Marangos clarified that the Washington Consensus has been misinterpreted by
Naim (2000), Stiglitz (2002) and others who described it as a neoliberal manifesto. (Jonas, 2010)
Stiglitz (2002) states that the Washington Consensus policies were “designed to respond to the
very real problems in Latin America, and made considerable sense… The problem was that
many of these policies became ends in themselves, rather than means to a more equitable and
sustainable growth. In doing so, these policies were pushed too far, too fast, and to the exclusion
of other policies that were needed.” (Stiglitz, 2002, P: 53-54).
Also, Stiglitz (2002) clarifies that:"The policies of privatization, in particular, were instituted at
a pace and in a manner that often imposed very real costs on countries ill-equipped to incur
them."(Stiglitz, 2002, P: 53-54).
1.5. The Post-Washington Consensus
Recently, the Post-Washington Consensus has been established as the fundamental principal for
developing economies. The Washington Consensus was confined rather narrowly to standard
neoclassical economics, relying on market competition for efficient resource allocation. The
Post-Washington Consensus broadened the scope to include nonmarket factors such as social
norms and power balances, drawing heavily on the recent achievements of institutional
economics.
The PWC is thus variously characterized as “a synthesis of national developmentalism and the
neoliberal policy agenda” (Öniş and Şenses, 2005, P:273); “a change in the speed, not the
direction” (Sumner, 2006, P:1411); and the “rebel heir” (Krogstad, 2007, P:83) of the original
Washington Consensus. Thus, it is neither a paradigm shift nor a stasis, but perhaps more of an
ongoing broadening, revision, or reorganization of a paradigm.
23. 9
Joseph Stiglitz (1998) presented his new concept of a 'Post-Washington Consensus' in one of his
main lectures, which was part of the Annual Lecture of the World Institute for Development
Economics Research (WIDER) of the University of the United Nations (1998). Stiglitz (1998)
presented a set of policies that "are the basis for what he sees as an emerging consensus, a post-
Washington consensus.” (Stiglitz, 1998, P:34). The main question raised was whether this
concept was a new consensus suggested by Stiglitz or were his ideas related to economic
development presented as a consensus?
The intellectual base of the PWC was to shift the analytical focus away from the neoclassical
concepts on competition and the principles of perfect markets towards the institutional setting of
economic activity, the significance of market imperfections, and the potential outcomes of
differences or changes in institutions.
According to Harriss and others (1995), "inspired by new institutional economics, the PWC can
provide a more nuanced understanding of economic development. For example, the PWC
acknowledges that at the core of the development process lies a profound shift in social
relations, the distribution of property rights, work patters, urbanization, family structures, and
so on, for which an analysis limited to macroeconomics aggregates is both insufficient and
potentially misleading.” (Harris and others, 1995, P: 34).
Wade (2000) states that: "the PWC represents a distinct break with the WC, as they associate
neo-liberalism narrowly with the WC and the dogmatic belief in the virtues of the free market."
(Wade, 2000, P:215-243).
The Washington institutions continued to stress the virtues of the reforms and to blame poor
countries for their failure during the adaptation and implementation phases of the Washington
Consensus. For Example, the implication is that, in view of the IMF, countries must "do more of
the same, and do it well." (Rodrik, 2006, P: 997). On the other hand, the World Bank has dealt
with the WC policies in a careful way. The implications of the East Asian success and the
association of this success with the distribution of income, mass education and state guidance
were the main elements that played a major role in the position of this international organization
towards these policies.
24. 10
The main discourse of PWC is based on strongly emphasizing the importance of appropriate
institutions for achieving growth. According to Rodrik (2006), "Getting the institutions right has
sometimes been exaggerated to the point of becoming a mantra, just like getting the process right
was the mantra of the WC." (Rodrik, 2006, P: 979-980). It is worth mentioning here that the
suffering of institutions is concentrated on three levels. The first is related to the literature that
failed to establish strong links between institutional designs and long-term economic
performance. The second is that the demanded institutional reforms by the PWC are rarely new,
which is the reason why the World Bank advised poor countries to conduct several
improvements pertaining to the investment climate and education. Finally, the last point is
related to the empowerment of institutions in such a way that can be reflected positively on
attaining rapid reforms necessary for "development."
1.6. Neo-liberalism in Arab Countries and Middle East
It is worth mentioning here that the hegemony exerted by neo-liberalism is linked directly with
US economic and political interests and the agenda of BWI. (Khalidi and Samour (a), 2011).
Over the last two decades, and particularly under the Bush administration, the US has pursued a
policy to support the region through the creation of a neo-liberal economic zone tied to a series
of bilateral trade agreements. The US vision is summarized in promoting the free flow of capital
and goods throughout the Middle East region. The region’s markets will be dominated by US
imports, while cheap labor will be concentrated in economic free zones in order to manufacture
low-cost exports destined for markets in the US, the EU, Israel, and the Gulf. (Hanieh, 2008).
At the regional level, the adoption of the neo-liberal approach started in the early-1990s. North
African states started this process in order to replace their failed socialist or status development
strategies by a new paradigm suggested by the US and BWI. (Khalidi and Samour (a), 2011).
Sadat’s openness policy or infitah, for paving the way to private investment in Egypt, was a
turning point in Egyptian economic strategies in the late 1970’s. Signing the Israeli-Jordanian
peace treaty was the first step toward the adoption of the neo-liberal agenda in Jordan. It was
very clear that all the countries that have implemented neo-liberal reforms experienced an
increase in their poverty and unemployment rates, and the rise of a new social class whose main
25. 11
interest is directly linked to the privatization of the public sector and the liberalization of the
economy. (Khalidi and Samour (a), 2011).
1.7. Neo-liberalism in Palestine
The PA’s adoption of the neo-liberal approach has to be understood in the context of
longstanding efforts to reconfigure Middle Eastern states, their economies, and the region as a
whole. Attempts to push the PA to adopt the neo-liberal approach existed even before its creation
in 1994. This issue was very clear during the discussions of the ‘regional economic development
working group’ of the pre-Oslo Madrid negotiations, in which the PLO participated. (Khalidi and
Samour (a), 2011).
Khalidi (2011) clarifies that Neo-liberalism in the Palestinian Territories goes back to the 1990’s,
to the Madrid Peace Conference, the Oslo Peace Process, globalization and the incremental
involvement of International financial institutions in Palestine. Particularly the World Bank, and
increasingly the IMF, influenced the way of thinking of policy making elites. (Khalidi, 2011)
By 1993, Harvard economists and the World Bank, together with several Palestinian economists
recommended the neo-liberal approach as a basis for economic policies in order to guide the PA
through what was still seen as a five-year path to independence. (World Bank, 1993).
In 1999, the Council on Foreign Relations argued that good governance, the rule of law, and
policies related to investment are the necessary preconditions for Palestinian independence.
(Khalidi and Samour (a), 2011).
1.8. Neo-liberalism and PRDP (2008-2010)
While neo-liberalism is being rejected by many experts and countries around the globe, the PA is
developing its neo-liberal state-building program ‘Ending the Occupation, Establishing the
State'.
The program was developed and launched by Palestinian Prime Minister Salam Fayyad in 2009.
It was designed in order to offer the Palestinian people living in the West Bank a practical plan
that aims at delivering growth and prosperity. The program is based on a neo-liberal model
associated with the premiership of Salam Fayyad, when he formed the caretaker government
26. 12
after the struggle of between Fatah and Hamas and the establishment of a parallel government in
the West Bank and the Gaza Strip.
Khaildi and Samour (2011) state that "the Palestinian Reform and Development Plan (2008-
2011) incorporate with the statehood program. The PRDP is based on the neo-liberalism
approach which faithfully reflects the economic policy agenda set forth in the so-called "Post-
Washington Consensus". Post-Washington Consensus orthodoxy has been advanced by the
Bretton Woods Institutions (BWI), the World Bank Group, and the International Monetary Fund
(IMF), since the late 1990s. The more rhetorical than substantial overhaul of the previous
Washington Consensus reflects a more "inclusive" form of neo-liberalism, without abandoning
its free markets-centric, fiscally conservative, and light-touch regulatory core identity. The
transition of the PWC came largely as a result of political and intellectual dissatisfaction
globally (and even from within the institution concerned) with its poor outcomes and the flawed
theoretical underpinnings. The PWC envisions a responsive, capable state that ensures the
maintenance of security and public order, promotes opportunities for all, and empowers its
citizens who will now have the moral responsibility to rely on themselves instead of a
paternalistic social welfare state." (Khalidi and Samour (b), 2011, P:9).
Hanieh (2008) states that “the PRDP (2008-2010) is a developed plan in close collaboration with
institutions such as the World Bank and the British Department for International Development
(DFID), the PRDP has been implemented in the West Bank where Abu Mazen-led PA has
effective control. It embraces the fundamental percepts of neo-liberalism: a private sector-driven
economic strategy in which the aim is to attract foreign investment and reduce public spending
to a minimum.” (Hanieh, 2008, P:3)
The first point that has to be noted about the PRDP is that the heavy hand of the World Bank, the
International Monetary Fund and other neo-liberal institutions such as DFID, can be clearly seen
through the policy recommendations and outlook of these entities. Hanieh (2008) clarified that
“the argument behind PRDP is explicitly neo-liberal, calling on the PA to undertake a series of
fiscal reforms in order to foster an enabling environment for the private sector as the engine of
sustainable economic growth.” (Hanieh, 2008, P:4).
27. 13
2. Socio-Economic Development
In general, development can be viewed as a multi-dimensional phenomenon. Development has
major dimensions which include the level of economic development, the level of education, the
level of health services, the degree of modernization, the status of women, the level of nutrition,
the quality of housing, the distribution of goods and services, and access to communication.
2.1. Level of Economic Development
Economic development is seen as an analysis method of the economic growth of nations. It
includes a wider variety of variables and not a just a focus on economic growth. According to the
World Bank, “Economic growth by itself may not alleviate the problem of poverty within any
reasonable time-period." (Chenery, Ahluwalia, Bell, Duloy and Jolly, 1976, P:3)
The term ‘economic development’ was initiated in respect to economic growth and
industrialization only. This classification was made by the classical school of economics in the
early part of the 20th
century. Economic development in several countries such as Latin America,
Asia and Africa was not taken into consideration, and these countries were viewed as under-
developed versions of the Western World and could in time, catch up with European and North
American standards.
Schultz (1951) stated that "The term Economic Development shifted from a focus only on a
capital oriented concept to include human capital formation." (Schultz, 1951, P:585-587). This
idea of social development was further extended by Singer (1964) who included health and
fertility into the equation. This marked a notable change in defining economic development,
especially after the newly invented definition by Dudley Seers (1969): "incorporating
elimination of poverty, inequality and unemployment." (Seers, 1969, P:20)
Seers (1977) also commented on social development and said that “this kind of development had
been included to form part of the overall definition of Economic Development alongside
economic growth showing that third world countries were not merely less developed versions of
Western countries but had distinctive characteristics of their own, also known as the
Structuralism Theory." (Seers, 1977, P:25).
28. 14
Last but not least, economic development is "the process of improving the quality of human life
through increasing per capita income, reducing poverty, and enhancing individual economic
opportunities. It is also sometimes defined to include better education, improved health and
nutrition, conservation of natural resources, a cleaner environment and a richer cultural life."
(Penn State University, 2008).
2.2 Variables of Economic Development
In the following section all the variables of economic development are defined:
2.2.1 Structural Change
The term Structural Change, as defined by Matsuyama (1977), "is a complex, intertwined
phenomenon, not only because economic growth brings about complementary changes in
various aspects of the economy, such as the sector compositions of output and employment,
organization of industry, etc., but also these changes in turn affect the growth, and hence can be
seen through the development of an economy." (Matsuyama, 1997)
Based on the aforementioned, structural change refers to changing the structure of production,
which leads to the achievement of an overall higher economic growth observed in an increase in
output and employment. Also, Structural change can be used in order to describe change in an
industry; an increase in the service sector and the agricultural industry for example.
According to World Economy and Social Survey (Anonymous, 2006), structural change is a
necessary requirement for achieving economic growth. This growth can be achieved by adopting
and adapting existing technologies, substituting imports and entering into world markets for
manufacturing goods and services, and through the rapid accumulation of physical and human
capital.
29. 15
2.2.2. Economic Growth
Kendrick (1961) defines economic growth "as the increasing of the economy to satisfy the wants
of goods and services of the members of society. Economic growth is enabled by increase in
productivity, which lowers the inputs (labor, capital, material, energy, etc) for a given amount of
output." (Kendrik, 1961, P:111).
Robert (1998) clarifies that "lowered cost increases demand for goods and services, which also
results in capital investment to increase capacity. New capacity is more efficient because of new
technology, improved methods and economies of scale. This leads to further price reductions,
which further increases demand, until markets become saturated due to diminishing marginal
utility." (Robert, 1998, P:193-194).
Kendrick (1961) ensures that "Increases in productivity are the main factor responsible of
economic growth, especially since the mid 19th
century." (Kenderik, 1961, P:193-194).
According to Kendrick’s (1961) argument, a large part of the economic growth achieved at the
time was due to the reduction in economic input as per output. The balance of growth was
attained from using more inputs overall because of the growth attained in outputs. (Kendrick’s,
1961)
According to Robert (1998), "Modern economic growth started in the West in the early
nineteenth century; this growth was connected directly with the industrial revolution." (Robert,
1998, P:192).
According to Soubbotina (2004), "Economic growth becomes a difficult to sustain politically.
Second, economic growth itself inevitably depends on its natural and social human conditions."
(Soubbotina, 2004, P:4). Soubbotina (2004) clarifies that economic growth can be sustainable
when it relies on a certain amount of natural resources and services provided by nature.
Moreover, economic growth must be connected with the fruits of human development, such as
highly qualified workers who are capable at the technological and managerial levels.
(Soubbotina, 2004)
30. 16
2.2.2.1. Gross National Product (GNP) per capita or Gross Domestic Product (GDP)
per capita
Soubbotani (2004) defines GNP per capita or GDP per capita as "statistical indicators that are
easier to calculate, provide a rough measure of the relative productivity with which different
countries use their resources the relative material welfare in different countries, whether this
welfare results from good fortune with respect to land and natural resources or from superior
productivity in their use" (Soubbotani, 2004: P12).
2.2.2.2. Gross Domestic Product and Gross National Product
According to Soubbotani (2004), "GDP is calculated as the value of the total final output of all
goods and services produced in a single year within a country's boundaries. GNP is GDP plus
income received by residents from abroad minus incomes claimed by non-residents."
(Soubbotani, 2004, P:12). There are two ways to calculate GDP and GNP: 1) adding together all
the incomes in the economy - wages, interest, profits and rents. 2) adding together all the
expenditures in the economy - consumption, investment, government purchases of goods and
services, and net exports (exports minus imports). (Soubbotani, 2004, P:12-13). It is worth
mentioning here that GDP and GNP can serve as indicators of a country's economy. In order to
judge a country's level of economic development, these indicators have to be divided by the
population of the country. GDP per capita and GNP per capita indicate the approximate amount
of goods and services that each person in a country would be able to buy in a year if incomes
were divided equally. This is also known as "per capita incomes". (Soubbotani, 2004, P:13-14).
2.2.2.3 Purchasing Power Parity (PPP)
Soubbotani (2004) defines PPP as "a conversion factor that shows the number of units of a
country's currency required buying the same amount of goods and services in the domestic
market as one dollar would buy in the United States. By applying this conversion factor, one can,
for example, convert a country's nominal GNP per capita (expressed in U.S. Dollars in
accordance with the market exchange rate of the national currency) into its real GNP per capita
(an indicator adjusted for the difference in prices for the same goods and services between this
country and the United States, and independent of the fluctuations of the national currency
31. 17
exchange rate). GNP in PPP terms thus provides a better comparison of average income or
consumption between economies." (Soubbotani, 2004, P:14).
2.2.2.4 External influence on Government
Through neo-liberalism, a government’s power in matters pertaining to economic development
can be influenced by external organizations. International organizations such as the IMF and the
World Bank have the potential to decrease government control in its own country in order to
cause a loss of legitimacy (Riddell, 1992). In terms of economic development, this issue can
have drastic effects on political instability as well, because this instability could lead the
government to reduce effective measures for implementing policies related to economic
development. The stability of the government and its participation in economic issues are seen as
essential conditions for anticipating the implementation of effective measures concerning
economic development. According to Riddle (1992), "in relation to developing countries, we see
that the influence of external forces have profound impacts on the organization of the state and
can lead to a decline in the states' capacity to implement economic development policies."
(Riddell, 1992, P:53-68).
According to Miller (1992), "External influence on local governments consists of political
instability and policy instability. Political instability deals with the potential or actual change in
the political system and the opportunities evolving from such changes. Policy instability refers to
the instability in Government policies." (Miller, 1992, P:311-331).
2.2.2.5 Industrialization
A growing economy changes the proportions and interrelations among its basic sectors -
agriculture, industry, and services - and between other sectors - rural and urban, public and
private, domestic and export oriented.
Soubbotani (2004) states that "one way to look at the structure of an economy is to compare the
shares of its three major sectors - agriculture, industry and services in the country's total output
and employment." (Soubbotani, 2004, P:63).
32. 18
2.2.2.6 Foreign direct investment and Trade
2.2.2.6.1 Foreign Direct investment
Many economists, decision makers and academics contend that foreign direct investment (FDI)
can have important positive effects on a host country’s development efforts. FDI can be
considered as a source of valuable technology, which can help jumpstart an economy. Based on
the aforementioned arguments, developing countries have offered incentives to encourage
foreign investments in their economies.
Economic and technological forces were the main reason behind the growth in international
production. Also, the growth of international production is driven by the ongoing liberalization
of FDI and trade policies. In this context, globalization offers a good opportunity for developing
countries to achieve faster economic growth through trade and investment. It is worth
mentioning here that during the 1970’s, international trade grew more rapidly than FDI. This
situation has been changed in a dramatic way in the middle of the 1980’s when world FDI started
to increase sharply. In that period, the world FDI has increased its importance by transferring
technologies and establishing networks for efficient production and sales at the international
level (Shujiro, 1998).
Most countries offered a wide range of incentives to attract FDI. Experience from other countries
shows that such developed plans have limited impact on new investment opportunities, reduce
transparency of the business climate, and lead to higher taxes. Tax incentives and free zones are
employed by some countries in order to attract investors, despite mixed evidence about their
impact on FDI flows and the potentially high costs compared to the benefits (Sorsa, 2003).
Parantap Basu Derrick Reagle (1988) and Chandana Chakraborty (1988) carried out an analytical
study on 23 countries for the period between 1987 to 1996 in order to identify long run and short
run effects of FDI. The study clarifies that for open economies, causality between FDI and GDP
appears to be bi-directional. The study emphasizes that this causality is bi-directional only in the
short run for relatively closed economies. Also, the study ensures that long run causality for
relatively closed economies is uni-directional and runs mainly from GDP and FDI (P.P.A
Wasantha Athukoral, 2003).
33. 19
According to P.P.A Wasantha Athukoral (2003), “The analysis of Brecher and Diaz-Alejandro
(1997), gives us evidence that foreign capital can be the main reason to lower the economic
growth. This issue can be occurred by earning excessive profits in a country with severe trade
distortions as such high tariffs. Maria Carkovic and Ross Levine (2002) also came to conclusion
that the exogenous component of DFI doesn’t exert a robust, independent influence on growth.”
(P.P.A Wasantha Athukoral, 2003, P:8).
It is worth concluding here that no consensus has been reached on the steady state and dynamic
effects of FDI on growth. There are two kinds of studies in this regard: Ones which argue that
the impact of FDI on growth is highly heterogeneous across countries with relatively open
economies showing statistically significant results, while the other studies maintain that the
direction of causality between the two variables depends on the recipient country’s trade regime.
2.2.2.6.2 Foreign Trade
The relationship between economic growth and foreign trade was tackled by many economists
when foreign trades came into being. The development of foreign trade has been one of the most
important debates of economic research in academe. This issue refers to its impact on economic
growth. To some extent, the emergence of foreign trade and its development were closely related
with economic growth. In a way, foreign trade has a fundamental aim to promote the economic
growth of a country.
Chen (2009) states that “the classical school of economics believed that foreign trade promoted
economic growth in two ways. On the one hand, foreign trade improved the optimal distribution
of resources and productivity consequentially and then stimulated the economic growth; on the
other hand, one country could gain raw materials and equipments which it could not produce.
Those provided material basis for economic development.” (Chen, 2009, P: 127).
The most famous theories were ‘exports of surplus’ of Adam Smith, ‘comparative advantage’ of
David Ricardo, the ‘interest of trade development’ of John Mueller and “trade is the engine of
economic growth” of D.H. Robert Morrison. All the aforementioned theories tried to give an
interpretation for the relationship between foreign trade and economic growth (Chen, 2009).
34. 20
Chen (2009) states that “the representatives of structural school put forward dual economy
model which parted a developing country into capitalist part and non-capitalist part. The
capitalist sector was bound to promote the growth of the economy through absorbing and
accumulating surplus labor form non-capitalist sector. If the capitalist part produced the
exporting goods and traditional part produced the importing goods, foreign trade would
undoubtedly expand the market and demand of products in capitalist part and reduce the wages
of labor. Then it would further increase the profit and accumulation of the part and promote
economic growth.” (Chen, 2009, P:127-128).
Based on the analysis of Max Corden, Chen (2009) clarifies that a country’s foreign trade affects
macro-economics in five ways; the revenue effect, the effect of capital accumulation, the
substitution effect, the income distribution effect and the effect of the weighted elements. All the
above effects were cumulated, and the impact of trade on economic growth was strengthened
gradually with the development of the economy (Chen, 2009).
New growth economists pointed out that the growth of developing countries would be attributed
to the improvement of productivity. Based on that, this theory made a series of models to study
the relationship among international trade, technological progress and economic growth. This
group concluded that international trade promotes economic growth through technology, and
clarified that the mutual promotion relations between international trade and technical change
could help in ensuring long-term economic growth (Chen, 2009).
Chen (2009) states that “the new-trade theory economists believed there were two ways for
international trade to promote economic growth. One was the effects of economies of scale
brought by trade, and the other was that international trade could promote economic growth
through improving the optimal allocation of resources between materials production sector and
knowledge production sector.” (Chen, 2009, P: 128).
35. 21
2.2.2.7 Public and Private Enterprises
2.2.2.7.1 Public Enterprises
The role of government in developing countries grew dramatically in the second half of the 20th
century, especially after the end of the colonialism époque. In many of these countries, the state
was responsible for mobilizing resources and directing them towards accelerated economic
growth, rather than just stabilizing the economy, as is the case in most developed countries.
There is no universally agreed upon definition among scholars regarding the conceptual meaning
of public enterprises. According to Laleye (1985), the bewildering number and types of
organizations known as ‘public enterprises’ and the different contents and rational for which they
are set up, accounts for the lack of authoritative and generally acceptable definition for public
enterprises. (Laleye, 1985)
Sosna (1983) opined that there are many reasons why there is not a single standard definition for
public enterprises in developed capitalist countries. Public enterprises have been established at
different periods, and each epoch naturally brought forth the types of public enterprises most
clearly matching its own conditions. (Sosna,1983)
Efange (1987) defines public enterprises as institutions which are owned by the state or in which
the state holds a majority interest, whose activities are of a business in nature, and which provide
services or produce goods and have their own distinct management. (Efange, 1987)
Literature has noted that the establishment of public enterprise was regarded as a remedy for
market failures. Public enterprises facilitated economic independence and planned development.
Where there is market failure, and unregulated pursuit of profit does not lead to the maximization
of economic efficiency, public enterprise can be established in order to correct misalignment of
public and private objectives.
Other reasons for the establishment of public enterprises were explored by Cook (1997). Firstly,
it was thought that public enterprises could provide government too much needed revenues. Van
De Walle (1989) states that “Governments mistakenly believed that public enterprises would
36. 22
generate large profits with which they would be able to finance investment in priority sectors of
economy.” (Van De Walle, 1989, P:602).
Secondly, there were ideological and political reasons. For example, public production could be
made to seem more attractive in an ideological climate in which the private sector was held in
low esteem and a large public role in the economy was seen as a main reason for rapid sustained
development. It could secure for the government the provision of valuable industrial information
and control of strategic industries. Based on that, public enterprise may be justified for the sake
of employment creation and job security.
Thirdly, public enterprises could be used as a counterweight to the concentration of private
economic power or as a remedy for short supply aversion of the private entrepreneur, or to
strengthen the economic position of particular ethnic groups or geographical regions or to
overcome critical economic bottlenecks.
Cook (1997) states that public enterprises are often established by governments for different
reasons, one of which is profit maximization. (Cook, 1997)
According to Hemming & Mansor (1988), “It is noted that the state owned enterprises enable
governments to pursue goals of social equity that the market ordinarily ignores.” (Hemming &
Mansor, 1988, P:1-22)).
The majority of neo-institutional scholars, such as Douglas and Mancur Olson, state that several
cross national empirical studies have found a positive relationship between the quality of
institutions and governance structures and economic growth (Kaufman et al. 2000).
Other studies clarify that the quality of institutions and governance structures cannot be
considered as a reason for economic growth (Chong and Calderon, 2000, P:69-81).
2.2.2.7.2 Private Enterprises
The role played by the private sector in the development of economic growth and its impact on
eradicating poverty, is currently at the center of development plans for many countries around
the world. Private enterprises do not only promote economic growth and reduce poverty, but also
contribute to the provision of employment opportunities for the poor and to enhancing the quality
37. 23
of life. Supporting private sector development is a critical step towards the achievement of
sustainable economic growth.
The Private sector can therefore be defined as “a basic organizing principle for economic activity
in a market-based economy, where physical as well as financial capital is generally privately
owned and production decisions are made for private gain.” (General Bank of Lesotho, 2009,
P:1)
According to the General Bank of Lesotho report (2009), which was published in 2009, “the
relationship between the private sector and the economic growth has been recognized globally.
Most of developed and developing countries have drawn up strategies and implemented
programs aimed at developing the private sector. The private sector comprises individual
households, corporate firms, and multinational companies.” (General Bank of Lesotho, 2009,
P:1).
There is a growing recognition among countries that provide donations to poor and developing
economies, concerning the role which the private sector can play in order to create employment
opportunities, increase efficiency and production and promote economic growth. According to
the World Development Report (WDR) 2005, “Private sector entities invest in new markets and
new facilities that help strengthen the infrastructural foundation of the economy which, in turn,
lays a good ground work for attracting investors from abroad and facilitating achievement of
economic growth.” (World Development Report, 2005, P:56)
Private sector development also contributes to the reduction of unemployment and corruption,
which have far reaching implications for both economic and social life. Jobs and incomes created
by private sector enterprises lead to economic diffusion of growth by having a direct impact on
poverty alleviation. Developing the private sector helps in making people more involved in
economic activities and decision making processes by attracting new stakeholders in the
economy in order to maximize profits (General Bank of Lesotho, 2009).
It is worth mentioning here that the private sector is also the main source of tax revenue,
contributing to the public funding of health, education, clean drinking water, food security and
agricultural inputs, thus satisfying public demands.
38. 24
2.3 Social Development
Development is actually much more than just economic growth. The understanding of
development can differ from one country to another and even from one individual to another, but
it usually goes far beyond the objective of increased average income to include things like
freedom, equity, health, education, safe environment, and much more.
According to recent United Nations documents, "Human Development is measured by life
expectancy, adult literacy, access to the three levels of education as well as people's average
income which is necessary condition of their freedom of choice." (Soubbotani, 2004, P:7).
Soubbotani (2004) clarifies that “in a boarder sense the notion of Human Development
incorporates all aspects of individuals' well-being from their health status to their economic and
political freedom.” (Soubbotani, 2004, P:7-8).
The Human Development Report (1996) published by the UNDP states that "Human
Development is the end – economic growth a mean." (Human Development Report, 1996, P:35).
It is not easy to measure the level of social development and progress in human development.
There is a wide range of social indicators which can be used for this task, including education,
health, poverty and hunger, income in-equality, clean water, sanitation and electricity.
In the following sections the variables of social development will be defined:
2.3.1 Income In-equality
Soubbotani (2004) clarifies that "the number of people in a country and the average quality of
life depend on how equally or unequally income is distributed." (Soubabotani, 2004, P: 28).
Soubbotani (2004) ensures that measuring income in-equality can be conducted through the use
of Lorenz curves and Gini indexes. A Lorenz curve plots the cumulative percentages of total
income received against the cumulative percentages of recipients, starting with the poorest
individual or household (See Figure 2) (Soubbotani, 2004, P:29).
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Soubbotani (2004) clarifies that " Excessive inequality adversely affects people's quality of life,
leading to a higher incidence of poverty, impeding progress in health and education and
contributing to crime." (Soubbotani, 2004, P:31).
2.3.2 Poverty and Hunger
Poverty is deprivation of well being. According to traditional definitions, poverty is understood
as material deprivation, which incorporates living with low income and consumption. This issue
can be characterized by poor nutrition and poor living conditions.
Soubbotani (2004) states that "the broader definition of poverty as a multidimensional
phenomenon leads to a clearer understanding of its causes and to a more comprehensive policy
which aimed at poverty reduction. For example, in addition to the issues of economic growth and
income distribution, it brings to fore equitable access to health and education services and
development of social security systems." (Soubbotani, 2004, P:33).
According to Soubbotani (2004), "hunger is the most extreme manifestation of poverty and
arguably the most morally unacceptable. In the globalized world of the 21st
century, with more
than enough food produced to feed all of its 6 billion inhabitants, there are still over 800 million
poor suffering from chronic undernourishment." (Soubbotani, 2004, P:38).
According to the estimate of the UN Food and Agriculture Organization (FAO), in 1999-2001
there were 842 million undernourished people in the world. This number is distributed across
developing countries, countries with transition economies and in high-income economies. (FAO,
2001)
2.3.3 Education
Human capital is developed through education or capacity building programs that increase the
productivity of an individual at the economic levels. In turn, this economic productivity enables
individuals to produce more valuable goods and services, thus attaining high income.
Governments invest in human capital to accumulate knowledge and skills. The majority of
governments believe that better education will contribute to faster sustainable development. The
following are two main indicators to measure education outcomes:
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2.3.3.1 Net enrolment ration in primary education
Net enrolment ration in primary education is a ration of the number of children of official
school age enrolled in primary education to the population of the corresponding official school
age. On other hand, gross enrolment rations are defined as the ration of number of students
enrolled in primary education to the total population of the corresponding age group. Barro
(1991) views that "the enrolment ratios for different levels of schooling as indicators of the stock
of human capital, they may be inappropriate proxies for human capital stocks for current
economic production." (Barro, 1991, P:407-433).
Thomas and others (2000) state that "the only problem with this approach is that the enrolment
ratios are both flow variable, which represent human capital investment flows and the stock
itself." (Thomas and others, 2000).
2.3.3.2 Adult Literacy Rate
Literacy is defined as the ability to read and write, and having an understanding for any simple
statement related to everyday life. Adult literacy rate is defined as the percentage of literate
individuals (aged 15 years and up) to the corresponding population. On the other hand, youth
literacy rate is defined as the percentage of literate individuals (aged between 15-24 years) to the
corresponding population. The aforementioned indicators reflect one basic human right - a
minimum level of education. Adult literacy is considered as an excellent overall quality of life
indicator, which is associated with many other elements of quality of life, such as measures of
employment, income and health. (Barro, 1991)
Chen and Dahlman (2004) state that "while there has been some criticism concerning the
international comparability of the adult literacy rate because of the difficulty of ensuring that it
is applied systematically, it is commonly used to measure progress in achieving universal
primary education." (Chen and Dahlman, 2004, P:45).
Hicks (1980) clarifies that "the purpose of monitoring progress in meeting needs for primary
education, adult literacy is a better indicator than primary school enrolment since it is oriented
towards effects rather than efforts." (Hicks, 1980, P:17-20).
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2.3.4 Health and Longevity
Usually, the health of a country's population is monitored through the use of three main
statistical indicators: life expectancy at birth, infant mortality, and the under-five mortality rate
(U5M). These three indicators are frequently referred to as measures, by and large, of a
population’s quality of life, simply due to the fact that they reflect many aspects of the welfare of
people, counting their income level, the quality of their environment, their nutrition level, and
their ability to access healthcare, safe water and sanitation.
2.3.4.1 Life Expectancy at Birth
Life expectancy at birth is the number of years a newborn infant would live if prevailing patterns
of age-specific mortality rates at the time of birth were to stay the same throughout the child's
life. In other words, it is the theoretical number of years a newborn will live if the age-specific
mortality rates in the year of birth are taken as constant.
According to Hicks (1980), "It seems appropriate to use life expectancy at birth as one basic
measure the efficacy of a country's success in providing for basic needs." (Hicks, 1980, P:17-20).
This indicator reflects the level of health, nutrition, sanitation improvements, cleans water and
income, and thus indirectly links employment and shelter (Mazumdar, 1996, P: 361-384). Thus,
when a country witnesses a low life expectancy rate, this indicates the existence of a sizeable
percentage of the population who face poor living conditions, including lack of adequate health
premises and facilities.
2.3.4.2 The Infant Mortality Rate
The infant mortality rate is the death of babies under one year of age expressed for every 1000
live births. Infant mortality is understood to be a good indicator of the availability of a sanitation
system and clean water facilities, which are considered crucial for infants since they are
susceptible to water-borne diseases. Infant mortality has been characterized as an outcome
variable summarizing the degree of existence of contagious disease in a country, as infants are
more susceptible to these problems. This indicator demonstrates rapid response to many health
policies. Thus a high figure would show that there are many people living in conditions under
which basic health needs are not met (Mazumdar 1996; Goldstein 1985).
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2.3.4.3 The Under-Five Mortality Rate (U5M)
U5M is the probability of dying between birth and exactly five years of age, expressed per 1000
live births. Hence, it is considered to be the most suitable indicator of the increasing exposure to
the risk of death because it presents the most appropriate measures of recording mortality risks
during the most vulnerable years of childhood - the first five years of life. It has several
advantages over the infant mortality rate as a composite measure of health risks at childhood.
The risk of death remains high among children from this age group. Therefore, this indicator is
also an appropriate outcome measure in evaluating the effect of the many and different
intervention programs that aim to improve child survival (Ahmad and others, 2000).
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3 Conceptual Framework
Indicators of Economic
Development
Human Development
Index
Development
Other measuresGrowth
Growth
National income
per capita
Gross Domestic
Product (GDP)
Real GDP versus
Nominal GDP
Gross National
Product (GNP)
45. 31
4 Conclusion
Neo-liberalism is an economic and political framework. Economically speaking, it focuses on the
privatization and deregulation of industry and the liberalization of trade. During the 1970’s and
1980’s, developing countries were experiencing internal and external economic crises, and
therefore, adopted the neoliberal approach, which was considered to be a means for fostering
economic growth and human development.
The PA adopted the neo-liberal approach through the statehood program – sated with alluring
neo-liberalism terminology; plurality, accountability, equal opportunity, empowerment of
‘citizens’, protection of social, economic and political rights, and the state’s efficient provision of
services and public goods - which was launched by Dr. Salam Fayyad. This program, which was
incorporated with the PRDP, is based on four independent components: building good
governance institutions, achieving private sector growth, delivering effective services and
policing of the Palestinian population
Economic growth is a means to achieve development but not an end. As previously mentioned,
development is much more than just economic growth, and can be viewed as a multi-
dimensional phenomenon. It has major dimensions, which include the level of economic
development, the level of education, the level of health services, the degree of modernization, the
status of women, the level of nutrition, the quality of housing, the distribution of goods and
services, and access to communication.
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Chapter II: Research Design and Methodology
The primary goal of this thesis is to evaluate the extent to which the PRDP (2008-2010) may be
considered as a neo-liberal plan for the Palestinian Territories, and to also assess the extent of
economic growth achieved during and after the implementation phases of PRDP were translated
into socio-economic development.
Each of the four subsequent chapters is constructed around the same aforementioned research
question. I have approached each question independently, taking into consideration the fluidity
of themes across chapters.
The following questions are the main sub-questions which have been used during this study:
- Did the Palestinian territories adhere effectively to the neo-liberal approach? Was this
adherence appropriate? And did the PRDP lead to a paradigm of development?
- In what aspects have the Occupied Palestinian Territories experienced economic growth during
the implementation phases of the PRDP?
- What are the main reasons behind the achievement of this economic growth?
- Was this growth translated into socio-economic development in the Palestinian Territories?
- Did the Occupied Palestinian Territories become more socially developed after the
implementation phases of the PRDP?
This chapter will explain the research design and methodology that I used to respond to these
questions.
In the course of conducting this study, I employed a qualitative method using data from both
primary and secondary sources. I conducted several interviews with economists and academics.
The combination of approaches and data sources provides a balanced methodology and paves the
way for further development in later studies.
47. 33
1. Significance of the Study
The PRDP (2008-2010) is seen as an important development framework for achieving economic
growth and socio-economic development in the Palestinian Territories. As previously mentioned
the PRDP is incorporated in the statehood program and based on a neo-liberal approach.
Economic growth in West Bank and the Gaza Strip regions is estimated to have reached 9.3% in
2010, exceeding the PA budget projection of 8% (World Bank Report, 2011, P:5). Many people
give the PRDP the credit for this economic growth. Others argue that economic growth in the
OPT does not appear to be sustainable and thus cannot be considered as an indicator of success
in achieving socio-economic development.
The results and recommendations of the research can be valuable for Palestinian planners and
economists. This study can encourage the PA to assess Palestinian growth and development
during and after the implementation phases of PRDP (2008-2010), in order to assess neo-
liberalism as a policy paradigm for the Palestinian economy. It can also contribute to
encouraging Palestinians to move away from the current context toward a new paradigm that
understands development as a means to realize self-determination, rights and freedoms. Finally,
the research can create a platform for future researches in this area for people who are interested
in the most suitable economic and political paradigms that can lead to real socio-economic
development in Palestine.
2. Research Methods
The major concern of the research is to explore the extent to which PRDP (2008-2010)
contributes to the achievement of high economic growth and socio-economic development in
Palestine. To achieve this, the research methods should investigate multi level perspectives from
economists, academics, and reports conducted by national and international organizations.
The research methodology adopted is a qualitative method that depends mainly on the following:
Follow up and analysis of documents and official reports issued by states and
international institutions related to development plans in the Palestinian Territories
48. 34
(World Bank, International Monetary Fund, the United Nations, the European Union, et
al.).
Reports published by the PA: the Ministry of Planning and the Ministry of Finance.
Reports and statistics published by PCBS: Palestinian Center Bureau of Statistics.
Data collected through direct written questions, and interviews conducted with:
Representatives of international organizations, in order to understand the status
quo of the Palestinian economy.
Representatives of the PA, with special focus on the Palestinian Ministry of
Finance and Economy in order to explore the impact of economic growth on
socio-economic development in the Palestinian Territories.
Economists and academics, for the abovementioned reasons.
There are a number of advantages of qualitative methodologies for scientific research. Epstein
(1988) states, “descriptive, inductive, and unobtrusive techniques for data collection are viewed
as compatible with the knowledge and values of the scientific research” (Epstein, 1988, P:185-
195).
For situations in which researchers are faced with issues and problems that are not amenable to
quantitative examination, qualitative methods have been advocated (Sherman & Reid, 1994).
According to babbie (1986), “Qualitative approaches also have the advantages of flexibility, in-
depth analysis, and the potential to observe a variety of aspects of a social situation (Babbie,
1986, P:56).
A qualitative researcher who conducts a face-to-face interview can develop using questions on
the spot, gain a more in-depth understanding of the respondent's beliefs, attitude regarding the
main subject of the interviews. (Babbie, 1989)
The qualitative method was chosen for the aforementioned reasons. Moreover, the difficulty to
depend on questionnaires as a tool for data collection is another reason for this selection.
49. 35
Interviews also played an important role in the research methodology; they enriched the content
of the study by permitting a focus on sensitive topics that cannot be truly discussed if the
research depended solely on quantitative methods. Also, this research draws from secondary data
that includes: historical data, periodical reports, and previous studies, enabling the attainment of
needed findings and recommendations.
2.1 Interviews
To provide an in-depth response to the questions addressed in this research, open-ended
questions were prepared to allow the exploration of each theme. The flexibility of questions also
provided an opportunity for raising more questions and obtaining further insight and ideas. Of
course, this also depended on the type of conversation that was going on with interviewees.
It was also very necessary to strengthen the research by a series of oral and written interviews
with a number of international organizations working in Palestine, think tanks, in addition to the
viewpoints of a number of experts and academics in the socio-economic development field.
It is worth emphasizing here that the basic research methodology focused primarily on the
review and evaluation of official documents and reports published by international organizations,
in addition to those published by the PA. Therefore, these interviews are limited to a role of
furthering the discussion and supporting some of the facts related to socio-economic
development in Palestine.
Based on the objectives of the research, questions may be configured in a manner that spans
across two main axes:
1. Questions evaluating the extent to which the PRDP may be considered as a neo-liberal
plan for the Palestinian people.
2. Questions pertaining to economic growth and whether it was translated into socio-
economic development in Palestine.
The interviewees have been selected in accordance with special criteria:
- Two economists from the PA.
50. 36
- Two economists from the Palestinian Independent Commissions (direct relation with
research fields).
- Two academics specialized in the fields of economy and development.
- Two senior economists from international organizations.
- Two representatives from the private sector.
Ten interviews were conducted with the following individuals:
1. Mr. Ala’ Tartir – Policy Advisor – Al Shabaka / The Palestinian Policy Network.
2. Sam Bahour – Business Consultant – Applied Information Management (AIM).
3. Dr. Khalil Nakhlah – Expert in the development field, and previous consultant for the EU
and the Welfare Association.
4. Dr. Samir Abed Allah – Former Minister of Planning and General Director of the
Palestine Economic Policy Research Institute (MAS).
5. Dr. Samir Hazboun - President of the Bethlehem Chamber of Commerce and Industry.
6. Mr. Azmi Abdulrahman – General Directorate of Policies, Research and Analysis –
Palestinian Ministry of Economy.
7. Mr. Raja Al Khalidi – Senior Economist at the United Nations Conference on Trade and
Development (UNCTAD)
8. Mr. Metri Abu Eita – Former Minister of Tourism and business man.
9. Mohammad Attalah – Head of the Research Department – Palestinian Monetary
Authority.
10. Strahan Spencer – Economic Advisor – UK Department for International Development
(DFID).
51. 37
All interviews were conducted in February, March and April 2012. Some were conducted face-
to-face, while most were through written responses. The reactions of the interviewees were very
useful and efficient for the results of this study.
2.2 Limitations and Difficulties
Development in Palestine is not merely a technical process, but also a political and economic
vision. Within it, a wide issue, an amalgamation of factors are intertwined and overlapped, all of
which have profound impact on the attitudes and developmental priorities of the plans that have
been introduced, with a special focus on the PRDP (2008-2012).
The research by itself is an attempt to assess the economic performance of Palestine during and
after the implementation phases of the PRDP and whether this performance was translated into
real socio-economic development.
For that I would like to list some of the difficulties I was confronted with during the completion
of this research:
The refusal of some PA representatives to offer the possibility for an interview or respond
to the research questions explicitly addressing the adoption of the neo-liberal approach as
a political and economic paradigm.
Given the lack of political stability and security in Palestine, as well as the historically
inconsistent dedication to actually implement development plans, it is difficult to speak
of a cumulative and sustainable development process. This difficulty constitutes a major
obstacle to any researcher seeking to assess the impact and economic and social
consequences of short and long term plans.
Sometimes, there are discrepancies in the figures and statistics cited. These discrepancies
are a result of the differing references used by the various institutions, such as the PA, the
World Bank, IMF, UN, EC and so forth.
52. 38
Chapter III: Economic Growth during and after the PRDP
The neo-liberal paradigm emphasizes primarily on economic growth, and subsequently on
socioeconomic development – as its byproduct. This chapter will assess the extent to which the
PRDP succeeded as a neo-liberal plan in the Palestinian Territories, and highlight the major
dimensions of socioeconomic development linking them to the achieved growth during the
implementation phases of the PRDP (2008-2010).
1. Neoliberal policies as an economic and political paradigm in Palestine
Most of the literature reviewed indicated that the neo-liberal approach was the basis for the
PRDP (2008-2010). The PA’s formal declaration concerning the adoption of this approach is
stipulated in Article (21) of the Palestinian Basic Law (amended in 2005), which states that “the
economic system in Palestine shall be based on the principle of free market economy.”
(Palestinian Basic Law, 2005, P:21)
As previously mentioned, the aim of this research is to evaluate the extent to which the PRDP
may be considered as a neo-liberal plan for the Palestinian Territories. To support this, the
research took into consideration the various views of Palestinian experts who work in the field of
economic and social development and who are closely linked to the Palestinian reality.
Dr. Khalil Nakhleh (2012) refers to the importance of placing matters in their historical context
prior to responding to the research question. He emphasizes that “the PA’s adoption of neo-
liberalism appeared clearly after the occurrence of several fundamental shifts in the Middle East
in particular and the world in general; the defeat of the Arab States in the 1967 War, the events
of Black September (1970) in Jordan, the PLO’s departure from Lebanon to Tunisia, the death of
President Gamal Abdul Nasser, and the October War in 1973. Sadat’s presidency in Egypt was a
major turning point in the path of the Palestinian case, whereby during its meeting in Algeria in
1974, the Palestinian National Council was forced to come out with the "Ten Points Program",
and to press for accepting a political solution to any section of historic Palestine in order to
shape a nucleus for the formation of a Palestinian state. The year 1974 was a crucial year that
transformed the PLO from a liberalization organization to a bureaucratic one with the political,
economic and social branches.” (Nakhleh, 2012)
53. 39
Nakhleh (2012) also emphasized the constant role played by Samed Institute in adopting free
market policies and investing in business ventures in various countries around the world. He
believes that the PA adopted neo-liberalism and accompanied the Bretton Woods Institutions
throughout the Palestinian economic development stages since the Oslo Agreement. Nakhleh
(2012) however, does not think that the PRDP succeeded to play the role of a neo-liberal plan
because it does not take the development and liberalism factors into consideration. He added that
“we seem to have forgotten that the Palestinian Territories are occupied territories that suffer
from complete dependence on the Israeli Occupation that controls everything.” ( Nakhleh,
2012).
Khalidi (2012) confirms that “the PA undoubtedly adopted the neo-liberal approach through the
PRDP, and it was clearly visible following the Oslo Agreement and the Paris Protocol of
Economic Relations in 1994. This adoption established the groundwork for a relationship
characterized by Palestinian dependency on Israeli goods and donor aid, thus creating an
economy linked with the Israeli economy; one of the most liberal economies in the region and the
world.” Khalidi (2012).
Khalidi (2012) asserts that the PRDP is based on the so-called Post Washington Consensus that
encouraged states to adopt liberal economic policies derived from neoclassical philosophy. He
asserts that this approach is not appropriate for the Palestinian territories because it conflicts with
liberation and sustainable development. The PRDP, according to Khalidi (2012), is no more than
a security plan devoted to the presence of the occupation hindering any chance for reaching a
political and just solution to the ongoing conflict that has been going on for over 60 years. The
PRDP was created in order to prove to the Palestinians and others that the new era of the PA has
a different methodologically than that which existed during the Arafat era (1994-2004). (Khaledi,
2012)
It is worth mentioning here that the security plan is interlinked with Israel’s policy of asserting
control over important strategic assets and locations in order establish order among the
Palestinian people living within these locations to enable the control over and colonization of
land.
54. 40
To provide further clarification to this, Leech (2012) states that, “Hilal and Khan (2004) use the
following metaphor: “In a prison, the prisoners control 95% of the space.” Leech, 2012, P: 7.
Leech (2012) clarifies the metaphor of Hilal and Khan: “Because the PA took over responsibility
of day to day management of Palestinians in Area ‘A’, the Israeli’s policies produce equivalent
prisoners in order to police the Palestinian people and to organize their own services.” Leech,
2012, P:7).
This Israeli policy was embedded since 1967. A real change in this policy came only from the
rupture in Israel’s methodology of control over the Palestinian Territories affected by the
Palestinian popular uprisings. Therefore, the Israeli leadership came up with a new strategy to
cooperate with the Palestinian elite living within the Occupied Palestinian Territories and with
PLO leaders to create an authority that plays the role of police instead of the Israeli government.
As a result of the Oslo Process, thousands of Palestinian political elites from the PLO and Fatah
returned to the Palestinian Territories, dependent on the help and financial investments of a
group of capitalists who became successful in the Gulf after being forced to leave Palestine
during the Nakba. These capitalists returned to Palestine in 1990 in order to give legitimacy for
the PA through their financial support and investments.
Recently, the PRDP was the main reason for creating a newly empowered Palestinian capitalist
class that was portrayed as a predatory and oligarchic group of elites whose dominant position
was favored by the PA’s neo-liberal program made possible by security collaboration with Israel.
Khalidi (2012) concludes that the aim of the PRDP comes from the Israeli interest to weave co-
existence alongside economic peace, which was promoted by the Israeli government. The PRDP
was the main reason behind increasing Palestinian dependency on foreign aid and Israel. The
latter continues to exploit its dominating position to establish a hold on Palestinians by creating a
framework for control over vital and important resources, thus curtailing any potential
Palestinian capacity to confront the superiority of the Israeli government and effectively
nullifying any meaningful progress toward achieving their independence. (Khalidi, 2012)
55. 41
Al Khalidi (2012) states that “the adoption of the neo-liberal policy in the PRDP is one of the
PA’s most grievous mistakes. This adoption is inimical to development and liberation, which are
much needed by the Palestinian people. The PRDP cannot succeed neither as a midwife for
independence that is based on a strategy of resistance, nor as a development paradigm”
In reaction to the same question, Alaa Tartir (2012) states that “the adoption of the PRDP as a
neo-liberal paradigm depends on the definition and understanding of liberalism and neo-
liberalism. In sense, liberalism is the socio/political/ideological background of capitalism. And
in this spirit depending on international and regional experiences it became evident that the
blueprint of the neo-liberal agenda seems to be very problematic and in many ways harmful to
be implemented in a place like Palestine. It is not about right or wrong per se, it is about what
sort of path we need to have in order to create development. Do we need a development state or
do we need a quick jump with policies based on liberalization, privatization and stabilization?
Of course, the adoption of the neo-liberal agenda requires certain pre-requisites such as control,
rights and sovereignty, which are lacking in Palestine.” (Tartir (a), 2012).
Also in response to the same question, Sam Bahour (2012) states:”I cannot assure that the PA
has succeeded in adopting the neo-liberal approach and I cannot say that it was the right
decision. But I would like to say that the leaders of the Palestinian Authority have a strong
conviction that the solution of the Palestinian case will come only through the United States. I
believe that there is no problem for any country to adopt a socio-economic plan in order to
reach a paradigm of development, but the problem is how this country can benefit from this
adoption and have political and economic gains, and this is the main question regarding the
PRDP.” (Bahour, 2012)
According to Bahour (2012), the PRDP contributes to concentrating power and wealth in the
hands of a selected few (elites), who are apparently motivated by their short term personal
interests, without taking the real needs of the Palestinian people into consideration. The PRDP
has to be replaced by another strategy that is based on a participatory approach, with a special
focus on resistance and development. Bahour (2012) believes that planning at the national level
cannot be implemented in any form in a country that is under occupation. (Bahour, 2012)
