Free Markets Would Enhance Peace, Prosperity in the New Middle East

March/​April 1995 • Policy Report

An emphasis on free markets would lead to dramatic economic growth in the Middle East and advance the cause of peace, according to the Israeli, Palestinian, and American participants in a Cato Institute conference, “Arab‐​Israeli Peace: Prosperity or Politics?” held in New York City on January 26.

Yakir Plessner, a scholar at the Institute for Advanced Strategic and Political Studies in Jerusalem and a former deputy governor of the Bank of Israel, said that although Israeli governments have recognized the need for far‐​reaching economic reforms since 1985, the record has been mixed at best, since many new developments, such as the increasing tax burden, have actually hindered growth.

Ishac Diwan of World Development Report argued that “with a well‐​educated population, large amounts of skills and capital abroad, a strategic position between Israel and the Arab world, and a promising tourism potential, the removal of old restrictions on supply and demand can be expected to lead to fast growth [in the West Bank and Gaza].”

Economist Bruce Bartlett of the Alexis de Tocqueville Institution reviewed the record of foreign assistance to Israel and Egypt and suggested that those experiences “do not provide support for the idea that foreign aid is the key to Palestinian prosperity.” He suggested that the region would benefit from a cutoff of aid since government‐​to‐​government transfers have had long‐​term negative effects.

Arguing in favor of “self‐​determination through market orientation,” Palestinian economist Hisham Awartani of the West Bank’s An‐​Najah National University said that Palestinians should avoid following the statist economic examples set by both Israel and the neighboring Arab states. He also warned against the danger of becoming dependent on foreign aid.

Alvin Rabushka, a senior fellow at the Hoover Institution, suggested that a return to the high economic growth of Israel’s early years would mean overcoming obstacles such as chronic inflation; high tax rates; the unduly large public sector; and state ownership of land, industry, commerce, and banking.

A luncheon audience heard renowned Wall Street investor Jim Rogers, author of Investment Biker, tell how the inherently pacifying forces of the market could end centuries of conflict in the Middle East. Rogers pointed to contemporary and historical examples of markets subduing conflicts among nations.

A panel on free trade examined the benefits of lifting trade restrictions between Israel, Jordan, and the Occupied Territories. Speakers included Ephraim Kleiman of the Hebrew University in Jerusalem, Karim Nashashibi of the International Monetary Fund, and Cato chairman William Niskanen. Sir Alan Walters, director of AIG Trading, said that a currency board in Israel would create a stable shekel, while David Malpass of Bear Stearns & Co. assessed the Middle East investment climate.