Free Market Liberalism and the Israeli-Palestinian Conflict

First Published: 2021-06-12


The recent fighting between Israel and Hamas in Gaza has renewed discussion and debate about finding some solution to the Israeli-Palestinian conflict. Most answers revolve around the idea of a two-state solution: the state of Israel and a Palestinian state. I try to very briefly explain the history of the last more than 70 years, and how more than twice there were viable ways of having such a two-state solution. And I explain why it did not happen.

The central theme of my article this week is to analyze the possibilities of either a one-state or a two-state solution to the Israel-Palestinian conflict, from what I suggest is a classical liberal, free market perspective, and how it could be implemented. I also discuss why its viability at the present time is highly unlikely due to the nationalist, religious, and generally collectivist outlooks of too many on both sides. But it nonetheless shows what could be a way out, if liberty and free markets were the basis of any agreement and the relationships between the two states.

Free Market Liberalism and the Israeli-Palestinian Conflict

by Richard Ebeling

Read original post at AIER here…

The recent 11 days of warfare between Israel and Hamas in Gaza has once more raised the issue of one-state or two-state “solutions” to the over seven decade Israel-Palestinian conflict. In the long run, neither is a viable option outside of a politics of individual liberty and an economics of free markets.

There was a two-state solution laid out in the United Nations Resolution 181, passed by the General Assembly on November 29, 1947, in the face of the planned ending of the British Mandate over Palestine in 1948, which had been in place since the end of the First World War. Before World War I, there had not been a “Palestine,” but simply some administrative districts of the Turkish, or Ottoman, Empire in that eastern Mediterranean area that used to be broadly called the Levant.

After the First World War, much of the Ottoman Empire was divided between the British and French governments. What are now known as Syria and Lebanon were placed under French administrative control. What is today called Jordan and Israel-Palestine fell under British control, with “Palestine” made into British “mandate” territory under League of Nations oversight.

A Brief History of Arabs and Jews in Palestine

There had been Jews and Arabs living next to each other under the Turks in this area for hundreds of years. But with the emergence in the late 19th century of the Zionist movement – the idea and goal of reestablishing a Jewish homeland in the country of the ancient Hebrews – there was an appeal for European Jews to return to that part of the Ottoman Empire. During the British Mandate period from 1922 to 1948, the Jewish population in Palestine went from an estimated 15 percent to about 30 percent.

During the First World War, the British had promised homelands to Arab groups that revolted against the Turks as part of the British campaign in the Middle East. The British government also made a promise in the Balfour Declaration of 1917, for there to be a “national homeland for the Jewish people” in what became Palestine. The 1920s and 1930s saw increasing violence between Arabs and Jews over who had just claim to the land and a right to political jurisdiction to the territory when the British were eventually to leave.

The Second World War exacerbated the conflict in Palestine, with some Arab leaders, including in Palestine, being sympathetic or supportive of a German victory to expel the British and prevent any possible Jewish state. In the aftermath of the mass murder of millions of Jews in the Nazi concentration and death camps, Zionist organizations in Europe arranged legal and very often illegal immigration into Palestine of Jewish survivors of the Holocaust. At the same time, violent fighting intensified between Jews and Arabs in Palestine as the end of the British Mandate approached in May 1948.

U.N. Two-State Solution Foiled by Arab Attacks in 1948 and 1967

The United Nations Resolution of November 1947, mapped out two states, one Jewish and one Palestinian, under which the larger area of the territory was assigned to the Arab state. The city of Jerusalem, being sacred to Christians, Jews, and Muslims, was to be a separate internationally administered municipality. However, when the Jewish leadership declared the independence of the State of Israel on May 14, 1948 just as the British Mandate ended, the armies of Egypt, Syria, Jordan, and Lebanon invaded Palestine in an attempt to crush the Jewish state. When armistice agreements were finally signed in the early part of 1949 between Israel and the neighboring Arab governments, the ceasefire lines found Israel with more territory than under the UN partition proposal. And Jerusalem was divided between Israel and Jordan.

There was at that time another opportunity for a two-state solution, if the Egyptian and Jordanian governments would have been willing to cede the parts of Palestine that were under their respective occupations following the ceasefire. Instead, the Jordanian government annexed what has become known as the West Bank, and the Gaza Strip was kept under Egyptian administration. Thus, it was Jordan and Egypt that for almost 20 years prevented a Palestinian state from coming into existence next to Israel.

In June of 1967, Egyptian, Jordanian and Syrian armies again attacked Israel. But in a matter of six days, the Israelis not only repulsed their opponents, but occupied all of the West Bank, Gaza, the Egyptian Sinai Peninsula up to the east bank of the Suez Canal, and the Syrian Golan Heights overlooking the Sea of Galilee. After a formal peace treaty between Israel and Egypt in 1979, the Israeli army finished a staged withdrawal from the Sinai Peninsula in 1982. Israel annexed the Golan Heights in 1981.

Failure of Oslo Accords and Hamas Takeover of Gaza

In 1993, the Israeli government and the Palestinian Liberation Organization (PLO) signed the Oslo Accords that were meant to serve as a framework for partial Israeli administrative and policing withdrawal from areas of the occupied West Bank, in return for the PLO’s recognition of Israel as a legitimate state as the basis of future negotiations presumed to lead to a two-state solution. Further attempts were made on the basis of the 2000 Camp David Summit, but this too came to nothing. Conflicts and power struggles among Palestinian groups about the terms of the agreement, and the Palestinian Intifada (uprisings) against Israeli occupation in 2000 and 2005, led to a de facto breakdown of the negotiating process.

In 2005, Israel withdrew from the Gaza Strip and dismantled Israeli settlements there. But in 2007, the radical Hamas group defeated the Fatah faction of the PLO for control of Gaza and imposed its own heavy-handed authoritarian rule. Hamas has traditionally called for a one-state solution; that is, a wholly Palestinian state, which in the organization’s original 1988 Charter called for the elimination of the Jewish state through violence if necessary, with Jews and Christians free to live in an Islamic Palestine as long as Muslim rule and religious primacy is accepted and obeyed as the law of the land.

While its modified 2017 statement of principles says it would accept a Palestinian state within the borders before the 1967 war between Israel and its Arab neighbors, it continues to refuse to recognize the state of Israel, calling it the “Zionist enemy.” But even this “compromise” remains for Hamas a “transition” period until the final “liberation” of all of Palestine from Jewish control. Thus, Hamas’s long-term goal remains a one-state solution, under its Palestinian and Islamic political and religious control.

Jewish Settlements in the West Bank and an Israeli One-State

Over the decades after the 1967 war, the Israeli government has supported, encouraged, and formally and informally subsidized the establishment of Jewish settlements in the West Bank, with controversial “takings” of Arab land and properties, in many instances under the rationale of “security” interests. A map of the West Bank shows large swathes of land under Jewish settlement and jurisdiction in near-checkerboard fashion. Palestinians have disputed the legality of most, if not all, of these settlements, and argued that it undermines the possibility of a viable Palestinian state in terms of size and contiguous land administration. In addition, the eastern part of Jerusalem that had been under Jordanian administration before 1967 was formally annexed by Israel in 1980 as part of its national capital; Palestinians object, arguing that east Jerusalem should be the capital of a future independent Palestine.

There are those on the Israeli side who also believe in a one-state solution, but their insistence is for a unified political state from the Mediterranean to the Jordan River under Israeli control. Just as there are religious zealots on the Muslim side who only will accept an Islamic one-state, there are Israelis who want only a Jewish one-state, equally convinced that God “has given this land” to them. Other Israelis, either religious or secular, desire a two-state solution of some sort, but it is difficult to negotiate when influential and often violent organized groups among the Palestinians are not willing to take up the offer, and while some other Israelis are not willing to go along with any type of two-state arrangement, assuming one could be worked out.

This has remained the situation up to the most recent violent episode in May 2021 of thousands of missiles indiscriminately launched from Gaza at Israeli cities and towns, and the Israeli response of air strikes in an attempt to destroy Hamas’s missile sites, weapons depots, and political and military infrastructure. It is an open secret that Hamas often houses their military and related facilities in civilian apartment complexes, schools, and hospitals. When the Israelis bomb these locations – often with advanced warning for the civilian residents to vacate the areas – the Israelis are internationally criticized for targeting innocent men, women, and children; this serves Hamas’s propaganda purposes, and angers the Gaza victims into seeing Hamas as their savior from Israeli “aggression.”

Nationalist and Political Intransigence has Perpetuated the Conflict

Looking over the last more than 70 years, the primary failure for a two-state solution has been, in my view, due to the Palestinians and the neighboring Arab countries. It would have come into existence in 1948, if not for the attempt by those neighboring countries to try to kill the Israeli national baby in the cradle. There could have been a Palestinian state next door to Israel anytime between 1949 and 1967, if not for the political greed and power motives of the Jordanians and Egyptians in not allowing the birth of a Palestinian state by giving up their respective administration of the West Bank and Gaza.

And some form of Palestinian state might still have emerged in the 1990s and early 2000s, if dissention and nationalist radicalism had not dominated internal Palestinian politics, regardless of Israel’s own dogmatism and nationalist dreams in eating away at West Bank territory through the establishment of Jewish settlements, or even the annexation of east Jerusalem. The Israelis may be strongly criticized for a good many of the policies they have followed in the occupied areas since 1967; but the far greater burden for the failure of a two-state solution lies with Palestinian intransigent radicals who insist on all or nothing, with a willingness to use indiscriminate violence against Israelis and little regard for the destructive consequences for all the Palestinians caught in the crossfire, whether they are Hamas supporters or not.

I am aware that I have condensed a complex and very controversial history into a handful of paragraphs. I am also aware that what I have said, or may not have said, or even how I have said it, might be disputed and criticized by any number of readers. But however sketchy this summary has been, I believe that it captures the overall, general background to the Israeli-Palestinian conflict.

A One-State Solution Requires Abandonment of Tribal Collectivism

Let us suppose that a classical liberal and free marketeer – that is, an advocate of personal freedom, economic liberty, equal civil rights, impartial rule of law, and constitutionally limited government – were to be asked how might the conflict between the Israelis and the Palestinians be brought to a peaceful and mutually beneficial conclusion. What might be an answer?

One reply might be that there is no reason why there could not be a one-state solution in which both Israelis and Palestinians who both call that area between the Mediterranean and the Jordan River their home. A single country incorporating several ethnic, racial, or religious groups has sometimes been advocated as the most ideal of political arrangements.

For instance, British liberal historian, Lord Acton (1834-1902), argued for this in his famous essay on “Nationality” (1862), reprinted in The History of Freedom and Other Essays (1907):

“The combination of different nations in one State is as necessary a condition of civilized life as the combination of men in society . . . The fusion takes place by which the vigor, the knowledge, and the capacity of one portion of mankind may be communicated to another. Where political and national boundaries coincide, the society ceases to advance, and nations lapse into a condition corresponding to that of men who renounce intercourse with their fellow men.”

But there are certain prerequisites for the successful and enduring establishment of such a single political entity that includes people of different religions, races, ethnicities, and languages. The dogmas of racial, ethnic, religious, and ideological collectivism must be rejected as the basis of political unity. The insistence of one true faith for all people, one true nationality or ethnicity over others, and an insistence on one true way of living and interacting that requires and dictates that all must be made to conform to and be confined within it through the use of political force, means an inescapable breeding ground for inter-group tension, conflict, and policy warfare.

Government Interventionism Breeds Group Conflicts

Government interventions of various and sundry sorts become the means and methods to punish and persecute those who are not part of the special or favored “in-group.” The more the state commands and controls, regulates and redistributes, then the more everything in people’s lives becomes politicized and dependent upon success and failure within the political intrigues of government policy, whether that government is authoritarian or democratic.

For instance, Austrian economist, Ludwig von Mises (1881-1973), summarized the situation experienced by ethnic, linguistic, and religious minorities in the postwar period of the 1920s and 1930s in a variety of Eastern European countries guided by political and economic nationalism and special group privilege:

“If, for instance, members of a minority are alone engaged in a specific branch of business, the government can ruin them by means of customs provisions. In other words, they can raise the price of raw materials and machinery. In these countries [in interwar Central and Eastern Europe], every measure of government interference – taxes, tariffs, freight rates, labor policy, monopoly and price control, foreign exchange regulations – were used against minorities.

“If you wish to build a house or use the services of an architect from the minority group, then you find yourself beset by difficulties raised by the departments of building, health, of fire. You will wait longer to receive your telephone, gas, electric, and water connections from the municipal authorities. The department of sanitation will discover some irregularities in your building. If members of your minority group are injured or even killed for political reasons, the police are slow in finding the culprit. Think of the assessment of taxes. In those countries, Chief Justice Marshall’s dictum, ‘The power to tax is the power to destroy’ was practiced against the minorities.” (p. 13)

Many of the complaints made by Arabs who are Israeli citizens within Israel is the high frequency with which government approval and funding for housing, local infrastructure, licenses for operating businesses or offering various occupational and professional services are denied to or delayed within their communities, compared to Jewish Israelis and their communities in the country.

Israel may be a political democracy and have a vibrant and innovative private sector of international stature, but it is also a highly regulated economy and welfare state. Government approvals and permissions and fiscal expenditures dominate a wide variety of everyday life. Even if the Arab complaints and accusations of such interventionist discrimination are exaggerated, it is present to one degree or another precisely because the majority group politically controls the regulatory and redistributive processes in the halls of government, and many Jewish Israelis look suspiciously at their Arab Israeli neighbors and desire more such government benefits for themselves. The recent Jewish-Arab clashes and violence within the 1967 borders of Israel will only intensify such suspicions and attitudes for a foreseeable future.

A One-State Solution Requires the Depoliticizing of Society

Given the ideological, theological and nationalist currents in the Palestinian communities under Israeli control and occupation, if Hamas or even a more “moderate” group were to come to power over a one-state political entity, the abuses, discriminations, and personal dangers that would be experienced by what would then be Jewish Palestinians, would be economically and culturally oppressive in the minimum and potentially murderous in the extreme.

A one-state solution would work only if the ideas and attitudes among Israeli Jews and Arabs both within Israel and in the West Bank and Gaza were to radically change away from the group categories of “Jews” and “Palestinians.” That is, if they came first to see each other as individual people who happen to live next to each other in the same geographical area, and who happen, by accident of birth, to be ancestrally Jewish or Arab in the lineage or religious sense; but who are human beings, first, possessing certain individual rights to life, liberty, and honestly acquired property.

This requires, at the same time, the depoliticization of social and economic life. That is, a separation of society and economy from the state. Only by transferring virtually all, everyday human associations and interactions into the private realm of free markets and the voluntary relationships of civil society can the types of political interventions for one special group against another, as was explained by Mises, be overcome and minimized, if not completely removed.

Free Market Society Connects People Through Peaceful Gains from Trade

In the liberal free society, any and all personal likes and dislikes, any choices to interact with others regardless of who they are, or decisions to only collaborate with those of the same ethnic or religious background as oneself, are removed from “politics.” If I choose to discriminate, I am free to do so in dealing in the marketplace only with other Jews or other Muslims. But this cannot be imposed or prohibited on the conduct of others through the power of government intervention or restriction.

Prejudices are “private” and not political. Any one businessman who chooses to only deal with other “in-group” members must bear the costs of doing so of losing potential customers that might have been his, and also forgoing employing workers or dealing with suppliers who might have made his enterprise more profitable and financially successful. Likewise, such a person in his role as consumer may decide to only buy from a fellow member of his “in-group,” but he suffers a possible lower standard of living by missing a better priced or improved quality good or service he could have purchased from a member of an “out-group.”

The history and practices of free market societies show that when government restrictions, regulations, and prohibitions do not get in the way, most people end up as consumers and producers who are more interested in gaining the most advantageous opportunities they can find or create, regardless of the ethnic, racial or religious background of potential trading partners.

Indeed, if this was not true, what would be the point of regulations, prohibitions, or subsidies benefiting some groups at the expense of others, if such frequent “blindness” as to who the profitable trading partner might be did not exist? Markets, when left free, open, competitive and outside the manipulating hand of government tend over time to reduce prejudices and bigotries, and bring about greater harmony, understanding and social solidarity (in the most reasonable and proper meanings of the term). (See my articles, “South Africa and Ending Apartheid: The Free Market Road Not Taken” and “Free Markets, Not Government, Improve Race Relations”.)

For the foreseeable future, political, ethnic and religious biases, intolerances and suspicions make any such one-state solution “politically impossible.” The spirit of tribal collectivism is too strong in their different ways in both Israeli and Palestinian communities. Large majorities among both Israelis and Palestinians reject the very idea of it, outside of a political system in which it is assured that one group dominates the other in the name of power, control and imposed peace. And neither Israelis nor Palestinians are willing to set aside their respective beliefs on the need for and necessity of highly intrusive paternalistic regulatory and welfare states, which end up being used to benefit some at others’ expense.

No Successful Two-State Solution on the Basis of Collective Identity

That leaves the two-state solution. Again, suppose a liberal free marketeer were asked to suggest how might be determined the boundaries of an Israeli and a Palestinian state. If the answer were to be given on the basis of collective “Jewish” claims versus collective “Palestinian” claims, the answer, in my view, will remain as intractable as it has been since 1948, and more recently during the last several decades of Israeli control of the West Bank and before 2005 the Gaza Strip.

In the extreme, as we suggested, the Israeli and Palestinian claims are inclusive and categorical, with some Israelis asserting all land is Jewish between the Mediterranean and the Jordan River, and many Palestinians viewing the same categorical answer “right” and “just” for them. At the same time, there is nothing “natural” or historically sacred about the boundaries of Israel before the June 1967 war, since they were merely the accident of war at the moments that ceasefires went into effect between the new Israeli state and the invading Arab neighbors in 1949.

Neither can the existing status quo under the Israeli control of the West Bank and the network of Jewish settlements be viewed as unchangeable or “natural.” They, too, are the results of certain policies that could be intensified or reversed. After all, when the Israeli military completely withdrew from the Gaza Strip in 2005, a network of Jewish settlements that had been built there after 1967 were torn down and the Jewish settlers relocated inside Israel.

Individual Self-Determination and Boundary Setting Through Plebiscites

So how, then, would the borders between an Israeli state and a Palestinian state be determined? The classical liberals of the 19th century believed that individuals should be free to determine their own lives. It is why they advocated private property, voluntary exchange, and constitutionally limited government. They also believed that people should be free to reside and work in any country they wish. In general, therefore, they advocated wide freedom of movement. Governments should not compel people to stay within their political boundaries, nor should any government prohibit them from entering its territory for peaceful purposes.

An extension of this principle was that individuals should be free to determine through plebiscite what
political authority would exist where they lived. It should be kept in mind that this is distinctly different from the collectivists’ notion of “national self-determination,” the alleged necessity for all members of an ethnic, racial, linguistic, or cultural group to be incorporated within a single political entity, regardless of their wishes.

Classical liberalism implies “individual self-determination.” Austrian economist Ludwig von Mises argued in his book on Liberalism (1927) that the liberal ideal would allow individuals within towns, districts, and regions to vote on which state they would live under; they could remain part of the existing state, join another state, or form a new one.

Mises stated that in principle this choice should be left to each individual, not majorities, since a minority (including a minority of one) might find itself within the jurisdiction of a government not of its own choosing. But because it was difficult to imagine how competing police and judicial systems could function on the same street corner, Mises viewed the majoritarian solution to be a workable second best.

Or as Mises expressed it:

“The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to an independent state or to attach themselves to some other state, their wishes are to be respected and complied with . . .

“However, the right of self-determination of which we speak is not the right of self-determination of nations, but rather the right of self-determination of the inhabitants of every territory large enough to form an independent administrative unit. If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done. This is impracticable only because of compelling technical considerations, which make it necessary that a region be governed as a single administrative unit and the right of self-determination be restricted to the will of the majority of the inhabitants or areas large enough to count as territorial units in the administration of the country.” (pp. 79-80)

Limited Government Reduces Political Discrimination

Precisely because it could turn out that an individual found himself still living under a political regime not of his choosing even with this territorial conception of individual self-determination through plebiscite, the classical liberals argued that the best way to assure that the state did not abuse him through the use of state power on behalf of some others should be that every government be limited to only protecting the life, liberty, and honestly acquired property of its citizens in a social order based on voluntary association and free-market exchange.

In such a world the use of political power to benefit some at the coerced expense of others would be eliminated or at least reduced to the smallest amount humanly possible. Government, then, would be only a “night-watchman” responsible for guarding each individual from force and fraud under the equal protection of the law within its monopoly jurisdiction.

Plebiscite Principle and Free Trade for the Israeli-Palestinian Dispute

In the Israeli-Palestinian case, this would mean that each rural community, village, town, and city “between the Mediterranean and the Jordan River” would hold a plebiscite of the type outlined by Mises, with the individual members of that community each voting on whether they wished to be politically a part of an Israeli state or a Palestinian state. In the imperfect practical world of democratic politics, some majoritarian rule would establish the results of to which state the residents of the respective areas would be citizens.

There might be Arab communities within the 1967 boundaries of Israel that would choose to be part of a new, independent Palestinian state, as there might be Jewish neighborhoods on the West Bank that opted to be part of Israel, even though their town and area might be “surrounded” by that new Palestinian state. Different areas and communities that belong to the same political state need not be connected by contiguous territory. Alaska is separated from the “lower 48,” with Canada in between. It has not caused war or conflict between the United States and its northern neighbor since Alaska was purchased by the U.S. from Imperial Russia in 1867.

It is all a matter of the ideas and ideologies guiding the thinking and policies of such two political neighbors. If accompanying such a series of plebiscites and the demarcation of boundaries, the two states accepted the classical liberal principles of freedom of trade and freedom of movement by the citizens of the respective countries, it would not matter whether an Israeli or a Palestinian lived, worked, or did business in one country or the other. Under a mutual regime of freedom of trade and movement between Israel and Palestine, people might carry on their business and travel between work and home with no greater difficulty than had been established among the members of the European Union before the lockdowns and restrictions on movement resulting from governmental responses to the coronavirus crisis.

A Lot of “Ifs” Stand in the Way to this Two-State Solution

But this all requires a whole series of “ifs.” If the Israelis and Palestinians were willing to think of each other as individual human beings first and “Jews” and “Arabs” second. If they were willing to allow people, as individuals, to decide for themselves to which country they wished to belong. If they were willing to set aside their interventionist-welfare state presumptions and replace the mindset of political paternalism with the ideas of individual liberty, free enterprise in virtually all aspects of life, and replace the welfare state with the private associations and market possibilities of the non-political institutions of civil society. And if religion was separated in all ways from politics, and instead completely placed in the arena of personal choice, matters of individual conscience, and voluntary acceptance and association.

This would still leave many thorny issues, including and especially the “right of return,” by which is meant; those Palestinians who fled their homes and properties in 1948-1949, when faced with Israeli political rule. Or, likewise, those Jews who fled from homes and properties in the West Bank that fell under Jordanian control after 1949. And there would remain the issue of the political administration over Jerusalem and the religious sites within the city, though even here, no doubt, classical liberal-based answers could be found along parallel lines.

The tragedy is that few on either side think in these terms in a clear or consistent way. Indeed, a large majority of Israelis and Palestinians would, no doubt, consider the entire approach offered here as “unrealistic” and “unworkable,” and even undesirable. But this merely shows, in my view, how far people everywhere in the world are from understanding and appreciating the meaning and the logic and the possibilities of a society of personal liberty, free markets, and peace and prosperity, under rule of law and limited government.

Dr. Richard Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel, in Charleston, South Carolina.

Dr. Ebeling is the author of Austrian Economics and Public Policy: Restoring Freedom and Prosperity  (2016); Monetary Central Planning and the State (2015) as well as the author of Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition (2010) and Austrian Economics and the Political Economy of Freedom (2003). And the editor of the three-volume, Selected Writing of Ludwig von Mises, published by Liberty Fund.

He is also the co-editor of When We Are Free (Northwood University Press, 2014), an anthology of essays devoted to the moral, political and economic principles of the free society, and co-author of the seven-volume, In Defense of Capitalism (Northwood University Press, 2010-2016).

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