Gaza – the prison economy

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by Michael Roberts

Think of a prison.  It’s overcrowded; it lacks modern facilities and it is a daily struggle for the prisoners to survive.  The prison wardens are well equipped for security. Their governors come and go. Some are ‘liberal’ and try to reach a harmonious relationship with the prisoners and even improve conditions, although they do not release them. They would prefer that they did not exist.

The problem is that the prisoners to a man and a woman feel that they are unjustly imprisoned with the judge and jury in the pockets of the corrupt and racist governors.  So occasionally, they rebel and even kill some of the wardens in prison riots or assassinations.  Then tyrannical and sadistic governors take over and, with the backing of enraged wardens, carry out punitive attacks on the prisoners, killing and injuring many of them. The wardens also destroy the prison facilities every so often, reducing the conditions of the prisoners to the level of barbarism.

Eventually, the wardens, with the help of foreign money, agree to allow the prison to be rebuilt with the labour of the prisoners themselves.  But the prisoners do not end their burning hatred of the wardens, the governors and the system behind them.  That system is composed of militarists backed by religious fanatics and foreign money looking to support the governors and to make money out of their prison.  So nothing is resolved.  Prisons don’t work to restore social harmony but releasing the prisoners, in the eyes of the governors and their backers, would open the door to fatal attacks on them.

This is Gaza and Israel in a simplistic way.  The terrible cost of human life and injury or ‘collateral damage’ – as the Israeli wardens prefer to call it – on the prisoners of Gaza is compounded with the collapse of Gaza’s fragile economy.  The Israelis say their attacks are aimed at destroying the tunnels used by Hamas (the prisoners representatives) to attack Israel.  Actually most of the tunnels are in the opposite direction and designed to smuggle into this prison that is Gaza the raw materials for construction and the economy. Everything from diapers to steel rods has been ferried through the tunnels.  The tunnels are inevitably also used for conflict, both as a staging ground for Hamas fighters and as a route through which to resupply. There are no alternative supply routes for anything else either, so it is only natural the tunnels would get repurposed during a warden attack or to attack the wardens.

In 2010, when ‘liberal governors’ in Israel relaxed the economic siege following an international outcry over the deadly raid on a Turkish-flagged humanitarian flotilla, this allowed Gazans to import more consumer goods.  The Hamas prison leaders took the opportunity to transform the tunnels, which were previously used for only basic consumer goods, into a government-sanctioned trade route for raw construction materials and cheap Egyptian petrol, fuelling the economic boom of 2011 and 2012.  The tunnel trade accounted for 27% of job growth in the Gaza Strip in 2011.

Sky-scraping apartment complexes, glitzy new shopping malls and extravagant hotel retreats sprouted up amid the rubble and unemployment dropped to 28% from a record-high of 45% at the height of the blockade.  Per capita gross domestic product also increased by 19% in 2011. Hamas imposed heavy sales taxes that made a car, a sofa, or a gallon of gas sell in Gaza for more than twice the price in Egypt.  However, Hamas failed to supply proper electricity, water and sanitation, but that was difficult to do, restricted as it was by the wardens.

Hamas received handouts from Iran, about $200 million annually, with which it salaried 42,000 teachers, doctors and other public-sector employees.  Other handouts, most notably Turkey’s $350 million, were earmarked for specific projects including schools and hospitals.  But while the Hamas government raked in some $170m in annual ‘tax’ revenues from the tunnel trade, 44% of Gazan refugees remain reliant on food aid and 60% of households are either food-insecure or vulnerable to food insecurity, according to the United Nations Relief Works Agency.  Ironically, Israel is the main destination of these exports (82% in 2012).  After all, prison contraband must go through the wardens.

And ironically, it was Egypt which closed the tunnels, as the generals there took action against Hamas, the main supporter and beneficiary of the Muslim Brothers in Egypt.  Since then, Gaza’s economy has been on a sharp decline.  GDP growth fell from 5.9% in 2012 to less than 2% in 2013, reflecting mounting political uncertainty, continued accumulation of arrears to the private sector and a sharp deterioration of economic conditions in Gaza from mid-2013 on. Unemployment in the Gaza reached over 40% in Q1 2014, up from 32% at end-2012

The IMF explains: “Without a comprehensive removal of Israeli restrictions it will not be possible to set the economy on a significantly higher growth path.”  The IMF outlined the nature of these restrictions: the movement of people and goods, trade between the West Bank and Gaza and access to Area C (60% of the West Bank controlled by the wardens) and East Jerusalem, including the right to issue construction permits and to develop land and water resources.  If that happened, the World Bank reckoned the potential for growth in Area C to be equivalent to 35% of GDP – but not Gaza.

As for Israel, as governors of the prison, they will gain only a temporary respite by crushing Hamas militarily.  The Israeli military like to see the war against Hamas and the other Arab groups as one of ‘nail clipping’.  You cannot stop nails growing but you can keep clipping them so they don’t scratch you.  But this nail clipping is expensive and maintaining prison security with prisoners full of burning hatred and unrelenting bravery in the face of overwhelming might is very expensive.

The Israeli government is telling its people that the current ‘security operation’ may knock 0.5% pts off growth this year.  That sounds small, but with the economy already slowing down, it is not good news.  The military cost will be $2.9 billion, or 1% of GDP.  Before the conflict, the central bank forecast a slowdown in growth to 2.9% in 2014 from 3.3% last year.  So economic growth could be as low as 2% as a result of the attack on Gaza, or nail clipping.

The government is hoping that US subsidies will continue and that foreign investment into Israel will not be affected.  To ensure that, the Netanyahu regime has imposed a stringent austerity programme on the Israeli public, while expanding defence expenditure.   The defence ministry is reportedly seeking an additional 5 billion shekels in extra funding in 2015, over 51 billion shekels in 2014. But prior to the wardens’ attack, the Bank of Israel had said significant spending cuts and higher tax income of nearly 20 billion shekels was needed to meet the 2015 and 2016 fiscal targets.

It is the ordinary people in Israel who will pay for the conflict. Households in Israel have stopped spending. The area around Tel Aviv saw consumption drop by a third.  The tourism industry is particularly badly hit. Around 40% of the sector’s revenue is generated in the summer season. The poverty rate in Israel (near 20%) remains among the highest among OECD  countries. Much of this high poverty incidence is in the Haredi and Arab-Israeli communities.  In the next 20 years, the  population of these two groups is projected to exceed 40% of  the total population – a future issue for the governors.

The prisoners are being crushed brutally.  But the prison wardens are paying for it with their own future.