Last week, Brown students saw numerous posters and banners declaring that “we don’t want our education profiting from occupation.” To this end, activists observed Israeli Apartheid Week, advocating Brown’s divestment from companies that profit from Israeli policy in the West Bank and Gaza. This advocacy stems from a 2005 call issued by “Palestinian civil society” for boycotts, divestments and sanctions (BDS, not to be confused with Brown Dining Services) against Israel.
Predictably, most of the controversy over IAW originates from the conflation of Israel with apartheid-era South Africa. This is a semantic debate that serves as a distraction from the implications of a large-scale implementation of the BDS strategy, which is likely to have disastrous economic consequences for Israelis and Palestinians alike.
The primary economic impact of a consumer boycott against Israel would be a precipitous drop in Israeli economic output, which would in turn lower the income of many Israelis. Despite proponents’ claim that economic hardship would cause Israel to turn away from settlement construction, there is significant evidence that the reverse would occur.
Consider the effect of a lower national income on the Israeli market for housing. A 2009 Slate article points out that while the average cost of a two-bedroom living space in Tel Aviv is approximately $400,000, the cost of the same space in Modi’in Illit, an urban settlement 25 miles away in the West Bank, is only $180,000. Furthermore, in order to expropriate land in an Israeli outpost, one need only build a dwelling of some sort on that land.
Acting under the general assumption that people need places to live, a lower national income would cause settlement expansion. Moreover, the Israeli government, averse to the idea of reducing West Bank settlements, would have an incentive to ameliorate this economic shift by further subsidizing settlement construction.
The campaign for divestment from Israel, the second pillar of BDS, seeks to trigger capital flight from Israel similar to that of South Africa during the 1980s. In so doing, however, the negative effects of capital flight on post-apartheid South Africa — effects that would impact Palestinians — are ignored.
Under large-scale divestment, Israeli New Shekels would be sold for other currencies as investors leave Israel’s economy, thereby creating an oversupply and subsequent devaluation of the new shekel. Due to Israel’s nature as a highly trade-dependent economy, this would translate into soaring inflation. Because the new shekel is the main currency of exchange in the Occupied Territories, this inflation would affect Palestinians and would only compound their economic woes.
Despite the BDS strategy’s flaws, action must be taken to ensure that Brown’s investments are structured to promote peace. Instead of single-mindedly punishing Israel, Brown should invest itself in a way that fosters economic interdependence between Israelis and Palestinians, thus making the opportunity cost of war too large to justify.
IAW’s organizers demand Brown’s divestment from companies that sell arms to Israel. Instead, Brown should divest itself from all arms manufacturers — not only those that sell to Israel — and preferentially reinvest its funds in firms that contribute to Palestinian economic activity.
By facilitating Palestinian access to capital, export capacity will increase, such that Israel will face a choice between importing Palestinian goods and importing goods from further afield at greater cost. As Palestinian exports to Israel increase, the cost of substituting Palestinian trade will rise to the point that war will become too expensive for the Israeli economy.
Additionally, Brown can make an effort to purchase more Israeli goods. The role of such an effort in the promotion of peace may seem counter-intuitive, but by encouraging growth in the Israeli export sector, and thus its demand for labor, the economic cost of enforcing the West Bank separation barrier and the blockade of Gaza will increase.
Palestinians are currently alienated from the labor market due to Israeli policies that began during a period of elevated immigration from the former Soviet Union. As prominent journalist Naomi Klein has stated, this wave of immigration largely supplanted the role of Palestinian labor in the Israeli economy, thereby rendering measures like the separation barrier economically feasible.
However, immigration to Israel has largely dried up, leaving the country with the choice of allowing Palestinians into the labor market or attempting to draw more immigrants. A sharp increase in Israeli exports would cause labor demand to increase, such that drawing and resettling a corresponding number of immigrants would be prohibitively expensive, thus making the policies of separation too costly to maintain.
Given the catastrophic situation that Palestinians face, we as students and as a community must act. However, many aspects of this situation are caused by artificial barriers to trade imposed by the Israeli government, the solution to which cannot be the imposition of even more trade barriers. Pragmatic analysis and debate, rather than divisive rhetoric, will allow us to contribute to the formation of an economic groundwork for peace.
Hunter Fast ’12 is an economics concentrator from Bloomington, Illinois. He can be reached at email@example.com.