The Political Economy of Rentierism of the Palestinian Authority

Abstract

Since the Palestinian Authority's inception in 1994, it has set up institutions that were intended to form the core of a future Palestinian state. It established state institutions such as ministries and agencies, created an extensive security apparatus, and developed a tax system. However, without real sovereignty or control over border crossings, the PA has had to rely on two sources of external income: foreign aid and clearance revenue. Although the effects of foreign aid on the PA's domestic policies have been researched by many, the dynamics of this relationship with regard to the PA's wider revenues are little understood. Moreover, there has been no in-depth examination of the PA budget's components. This research aims to fill this gap. It examines how revenues have shaped the formation and behaviour of the PA. In particular, this thesis studies how foreign aid and clearance revenue have affected the PA's domestic and foreign policies. It does so by using a political economy theoretical framework based on Rentier State Theory to explore the effects of this dependency on the economy, state-society relations and foreign policy. The thesis establishes that the PA suffers from a case of double rentierism, depending on two sources of rentier income. The thesis argues that the relationship between donors and the PA on the one hand, and between the PA and Israeli clearance revenue on the other, has hindered the formation of a stable social contract between the PA and different segments of Palestinian society. The PA has had to continuously balance two separate conditionality mechanisms. The first involves technical conditionalities, whereby foreign donors and Israel forced the PA to meet procedural targets in order to qualify for rent disbursements. The second conditionality mechanism comprises political conditionalities imposed thorough economic, political and security policies. Conditionalities and inconsistent rent income altered the accountability of the PA in favour of rent providers, resulting in weak state-society relations and a limited capacity to co-opt society. Even the PA's limited successes in co-opting some segments of society were the result of external empowerment by rent providers rather than of increased domestic legitimacy. The PA's capacity was further constrained by the fragmentation of governance structures. Continual competition between the PA and NGO sector over foreign aid fragmented services provision and created parallel governance units. Internally, PA ministries competed for legitimacy from foreign donors, resulting in a fragmented and overlapping decision-making and governance structures.