Shir Hever, The Political Economy of Israel’s Occupation (Pluto, 2010).

There is a latter-day tendency to see the 44-year Israeli occupation of the Palestinian territories as the organic outward growth of the Zionist idea — as though the aspiration to hold the entirety of the land, embedded in Labor Zionist doctrine, was in fact a certainty, simply waiting for time to catch up. With the occupation deepened since the 1993 Oslo accord, and the remainder of the Palestinian populace crowded into a scattering of bantustans in the West Bank and one big one in Gaza, one can understand the diffusion of this way of thinking. It appears that the Zionist drive to dominion has neared completion.

Debate about the beginnings of the Israeli state is reasonably settled in historiography if not yet in the broader public realm. The general trajectory of Israeli history, its grounding in exclusionary settler-colonialism, quite unlike the inclusionary, plantation-style variety in South Africa, emerged from trends set in motion and likely crystallized by the early twentieth century. On the occupation, however, controversy still rages. Liberals and realists, glancing hopefully at a “peace process” that has been underway for one third of Israel’s existence, cast the post-1967 occupation as evanescent and extractable, rather than tightly woven into the warp and weft of Israeli political economy and culture. Radicals depict the occupation as emanating from long-standing tendencies among Jewish settlers, always eager to relax internal social tension by further theft from the indigenous population. Similarly, critics of Israeli settler-colonialism have long split along the historical fault line marked by the year 1967. For some, the founding of the state of Israel was bloody but legitimate, and the irredentism in the Occupied Territories is a horrible deviation from the Zionist project. For others, perhaps growing in number as the occupation persists, the process of Israeli state formation was, in its origins, sin.

Attitudes are well established. Yet actual explanations of the occupation’s endurance have been thin. Shir Hever’s The Political Economy of the Occupation is an effort to supply one that goes beyond partial or flawed theories and dominant obfuscations. Hever is first concerned to total the macro-economic costs and benefits of the occupation. He warns that aggregate numbers can conceal disparities of economic power and privilege in a blur of averages, but he uses them to paint a rough-and-ready picture of the relationship between the Palestinian and Israeli “sectors,” as well as the ways in which labor and capital, demand and tariffs, coil, braid and meld, making talk of Palestinian this or Jewish that not merely muddying but misleading. Many of the relevant statistics are buried or deliberately made inaccessible by the Israeli government. Nevertheless, Hever arrives at a cautious estimate of “income” drawn from the occupation: about 39 billion shekels during the period 1970-2008. He also calculates outflows of 104 billion shekels in the form of subsidies to the settlers in the West Bank and Gaza, and 316 billion shekels in “security costs,” the currency expended to protect the settlers and subdue the restive Palestinians.

Hever divides the occupation’s continuum into three chunks of time and space: 1967-1987 in the whole of the Palestinian territories; 1987-2002 in the West Bank; and 1987 to the present in Gaza. In each of these periods, he says, colonization and old-style exploitation mingled uneasily with neo-colonial forms of domination. The occupation has never been merely about extraction of resources, even from 1967 to 1987, when it was generally profitable for many sectors of Israeli capital. In the initial few years, the Palestinian gross domestic product skyrocketed: 11 percent per annum in the Gaza Strip, 15 percent in the West Bank. Simultaneously, however, industry — the classic barometer of development — shrunk as a share of GDP, from 9 to 7 percent. GDP growth was based not so much on backward-and-forward linkages within the Palestinian territories as on various external supplements: chiefly, remittances from Palestinians working in the wealthy sheikhdoms of the Gulf and the wages of workers who migrated daily from bedroom communities in the West Bank and Gaza to Israel proper. Wages inside Israel were significantly higher than those available in the territories.

Some of the GDP growth came about due to a conscious effort to palliate Palestinians with stable livelihoods. While times were good in Israel, the effort paid off. The period 1967-1977 was relatively quiet. Tax revenues collected from Palestinians exceeded Israeli expenditures in the Occupied Territories, while Palestinians remained a captive market for Israeli goods. Israeli employers, especially in construction, padded their profit margins by using low-wage Palestinian labor. By the end of that period, however, economic malaise traceable to the ruinous aftermath of the 1973 war had eroded the Labor Party’s three-decade hegemony. Likud took power in the epochal 1977 elections. The occupation became decreasingly profitable in aggregate terms over 20 years before Israel turned to the Oslo method of neo-colonial administration.

But the core sectors of Israeli capital do not deal in aggregate numbers. Each is worried about its own piece of the pie, not necessarily the pie’s overall size. Hever, following Jonathan Nitzan and Shimshon Bichler in The Global Political Economy of Israel, observes that the major capital sectors did well amidst the redistribution effected by hyperinflation in the late 1970s and early 1980s. By 1985, however, the dominant sectors had squeezed what they could out of the military Keynesianism that went hand in hand with occupation. As those policies stalled, state elites turned to an economic stabilization plan, a familiar neoliberal bundle of privatization and reduced subsidies alongside an aperture for incoming foreign capital and outgoing domestic capital. The Israeli economy was prepared for globalization. It just needed a push. The push came in the form of the first intifada, which convinced the elites that the time had come to outsource the everyday tasks of colonial administration to the Palestinian Authority.

Yet settlement building continued apace — the graph of year-by-year housing starts scarcely dips for a moment — and so “security costs” mounted annually. At the same time, the folding of the Palestinian territories into the Israeli customs envelope enabled Israel, in effect, to export some of the costs of occupation to the Palestinians since the economic architecture of occupation tends to direct Palestinian monies into Israeli hands. Part of the process involves foreign aid passing through the Israeli central bank, where it is converted into shekels. So long as those shekels are held on deposit, rather than used to purchase goods or services, they function as a loan from their Palestinian holder to the Israeli economy. A second component is that while in theory those monies could be used to purchase goods from Jordan, Egypt or elsewhere, imports from locations other than Israel incur customs duties and encounter administrative obstacles, while imports from Israel do not. The result is that 73 percent of imports into the Palestinian territories come from Israel. International “aid” thus reinforces Israeli power over Palestinian society.

Furthermore, Hever notes, the Oslo plan to outsource the policing element of occupation failed. Private security companies, most staffed by former army officers, took up the slack, and their industry grew lucrative indeed. What the Oslo process did do was to decrease the Israeli trade deficit, turning Israel into one of biggest per capita importers and exporters in the world. International investors broke into the theretofore restricted Israeli capital market, and the Arab boycott was largely lifted. Peace dividends piled up high. Yet the lacquer could not cover up the deepest fractures. The 1973 war had concussed the Israeli economy, greatly slowing a growth rate that had Israel on a convergence path with the industrialized world. Between 1960 and 1972, per capita GDP grew by 5.7 percent. Between 1973 and 2005, the annual growth rate was 1.81 percent, well below the OECD average. And although the period 2003-2007 saw a sharp uptick in growth rates — to 4.66 percent — this average was barely above global rates of 4.59 percent and below regional rates of 6.02 percent. And even then, the renewed growth was probably the result of Israel’s tie-in to global stock movements. From 2001 to 2006, the Tel Aviv Stock Exchange was shooting upward nearly in sync with the NASDAQ. The correlation coefficient between the two reached .92, meaning that, as shown by Nitzan and Bichler, flurries of activity in the NASDAQ “explained” 92 percent of the Israeli bourse’s movements.

The low post-1973 growth rate has led public education to deteriorate, resulting in a shift toward a private education system stratified along economic lines. Voter turnout has plummeted, army conscription rates have declined for decades and corruption has metastasized throughout the polity.

Viewed from one angle, Israel’s is an occupation without a constituency: producing little or no profit for the elites, yet perduring due to inertia or institutional gridlock. But such semi-tautologies do not suffice for Hever, who works through a series of theoretical explanations for the elongation of the occupation. Some seem a bit muddily explained. Hever employs Thorstein Veblen’s theory of industrial sabotage to frame the transmutation of Palestinian peasants and workers into consumers of Israeli products and laborers in workshops owned by Israeli capital, whether in the West Bank or in Israel proper. With its conception of capitalism — Veblen speaks of “finance” — as an inherently destructive pattern overlaying productive social relations, this notion is scintillating, but it needs to be more carefully explained.

Hever’s account gathers force when he begins to deal with the “Israeli anomaly.” For a long time, the Israeli working class has allied itself with Zionism. When the going was good, particularly before state formation, this choice made sense: As Jewish workers were faced with competition from lower-wage Palestinian labor, Zionists pushed for Jewish monopoly in the labor market. By creating the basis for a class alliance between Jewish capital and Jewish laborers resting on an exclusionary process of settler-colonial state formation, Labor Zionism became hegemonic in Israeli society, through institutions like the Ashkenazi-dominated Mapai in politics and the Histadrut, the trade union federation. Such parastatal entities served as the crèche for the “new class” that helmed privatization schemes as state-guided development evolved into corporate capitalism.

As the going got tougher, the “anomaly” has become harder to explain. As Hever writes, the “anomaly” lies in the disconcerting reality that “working-class Jewish citizens of Israel would rather identify with a nationalist agenda than form a solidarity movement” with the Palestinian underclass. Indeed, working-class Jews tend to support the more right-wing, more aggressively and outwardly pro-occupation parties: Likud and Shas. Hever advances several possible reasons why. Class struggle has been overshadowed by ethno-national contention; the settlements function as an alternative welfare state; and, as Gershon Shafir has shown, there is an Israeli “color bar” by which certain groups are excluded from decent positions in the socio-economic hierarchy. Indeed, the occupation’s latest incarnation prevents most 1967 Palestinians from working in pre-1967 Israel. Hever contends that the economistic Marxian analysis ultimately founders on the shoals of the social reality that Palestinian citizens of Israel “share similar economic interests with working-class Jews, but often have radically different political views.” Race, it seems, takes pride of place over class, welding together a cross-class Jewish social bloc that rejects the occupation only at the margins. With no electoral support for ending the occupation, why would any party take that step?

Hever goes further still, adducing Bourdieu’s notion of “distinction” as a way of explaining Jewish underclass support for the occupation. The creation of internal hierarchies allows for “prestige” to accrue even to those who get little else in the way of remuneration. Wealth correlates with ethnicity in Israel — the Mizrahim are far poorer than the Ashkenazi minority, and there is not much intermarriage — but Oriental Jews can consider themselves part of the dominant group when the conflict in Israel-Palestine is understood as a national one. The Jews of the Arab and Muslim worlds are on top in such a conflict, but not when class is understood as the central antagonism.

The upper class, however, tends to be more pragmatic about such matters. Control over capital is generally key — but not necessarily as commonly understood. Departing from orthodox Marxism, Hever again follows the work of Nitzan and Bichler, who argue that capital is an accounting unit of social power, the right of dispensation over what a society produces in goods and services. That is, capital is ownership rights, including, especially, the right to exclude. Nitzan and Bichler further contend that ruling-class maneuvering is not merely a question of extraction from the lower class but of dominance within the ruling class. So firms seek maximum relative profit through differential accumulation. This theory goes some distance toward explaining the political economy of Israel and the entrenchment of the occupation. The nascent ruling class accumulated capital through German reparations and Jewish American investments in the first two decades of the state’s existence, along with preferential access to dispossessed Palestinians’ land. The elite consolidated its power through control of the Histadrut, which both “organized” and employed Israeli Jewish labor. In the post-1967 period, aid from the United States bulked up the military-industrial complex, while cheap Palestinian labor injected the proceeds of exploitation into the muscle of major capital sectors. Militarization and centralization went hand in hand. After 1973, as stagflation hit the world, a consequence of the oil price hikes that Israeli irredentism and regional belligerence justified, the dominant clusters of capital within Israel further strengthened their position at the expense of weaker sectors, a fact that aggregate measures are methodologically incapable of perceiving.

In the wake of the Oslo economic peace, foreign capital and Israeli capital promiscuously intermingled, delivering the goods to those who mattered most: the Israeli upper class. Inequality shot up despite anemic overall growth. The “peace” aspect of Oslo succeeded less well, as the Palestinians did not take kindly to the attempt to ram apartheid down their throats. Watching the accumulation and centralization of capital provides a compelling perspective on Israeli society. Yet the perspective looks from the top down, viewing history merely as the output of the machinations of dominant capital. A Gramscian notion of hegemony and social consent, in particular, is absent from the optic provided by Nitzan and Bichler and adopted by Hever. But social dynamics are integrally tied to the continuance of the settlement project as well as the post-2000 reversion to open occupation and warfare, with the “peace process” reduced to fig leaf.

Pace utopian hopes, the Israeli “anomaly” is not nearly as anomalous as Hever would wish. The historical situation of the left is failure. Yet the “anomaly” is nonetheless remarkable: The dissolution of calls for redistribution in the acid bath of nationalism has to be identified as one of the more powerful effects of Zionist ideology. The split Israeli labor market functions not merely within Israel but in a more complicated way across the West Bank, whose workers are increasingly sheared from the Israeli labor market but incorporated into its political imaginary as an excluded “other.” As groupings ranging from the Palestine Communist Party to Matzpen have discovered to their tragic chagrin, the occupation and the subordination of 1948 Palestinians to internal colonialism make the creation of a binational left quite difficult.

The sheer over-determination of Israel’s development trajectory by its historical evolution as a regional client state may explain the “anomaly” to some extent. Israel has remained remarkably immune to radical change since 1948, recalling Barrington Moore’s remark that a sick society may well be one where revolution is impossible.

Nevertheless, the Likud win over Labor in 1977 and the rapid expansion of the settlement enterprise are not simply reducible to the mechanical whir of power-seeking dominant capital. Indeed, whether or not the settlement project constitutes a fully worked-out alternative welfare system is hardly the point. The point is ethnic inequality among Israeli Jews: A large proportion of the lifestyle settlers — those receiving economic inducements to settle on Palestinian land, which includes stealing Palestinian water and building homes on stolen real estate — are Mizrahim. The same is true in the officer corps of the army, as well as its rank and file. Toying with ending the occupation — however adversely it has affected the Palestinians — enraged the Oriental underclass, which correctly understands the occupation as a means of social mobility. Never mind that, in a nation in which symbolic capital is accrued by Israeliness, the symbolic economy constructed by Ashkenazi power militates against any movement away from the siren of nationalist sentiment. As a Moroccan Jew explained to Amos Oz in the aftermath of the 1982 invasion of Lebanon:

If they give back the territories, the Arabs will stop coming to work, and then you’ll put us back into the dead-end jobs, like before. If for no other reason, we won’t let you give back those territories. Not to mention the rights we have from the Bible. Look at my daughter: She works in a bank now, and every evening an Arab comes to clean the building. All you want is to dump her from the bank into some textile factory, or have her wash the floors instead of the Arab. The way my mother used to clean for you. That’s why we hate you here. As long as Begin’s in power, my daughter’s secure at the bank. If you guys [Labor] come back, you’ll pull her down first thing.

Social forces explain why the settlement project continued apace throughout the attempts by Israeli dominant capital to emplace a final settlement at Oslo. The settlement project and the occupation are to Israeli society as a tumor is to the human body. Excision is possible, but at the risk of killing the host. No leader, Labor or Likud, wished for the social confrontation that would have transpired were he to have stopped the settlement project cold in the 1990s, let alone reversed it, as the Oslo agreement vaguely suggested. The turn to renewed militarism at the millennium was pushback from the army and the ethnic and social forces arrayed around it. Yet dominant capital did not care all that much — it remained cheaper to export Israeli social contradictions to the Palestinians than to allow those contradictions to crystallize.

A nuanced portrait of the occupation demands putting the imbrications of war, ethnicity, labor and capital under microscopic analysis. Hever’s book provides the theoretical tools for a comprehensive understanding of the occupation, but what he has produced with those tools is too static, with each theory disprovable at a specific juncture. Except for Nitzan and Bichler’s, none of them are “covering laws” for the occupation, whose truth lies in the telling. There is no question that Hever has provided one of the more engrossing contributions to the political economy of the occupation to emerge in some time. Indeed, he has shown himself capable of writing the benchmark account. But we do not yet have it in our hands.

How to cite this article:

Max Ajl "Why Does the Occupation Continue?," Middle East Report 262 (Spring 2012).

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