The Political Economy of Palestinian Children:
An Examination of the Linkages between
 Economic Policy and Child Welfare


With over 52 percent of its population under the age of eighteen, Palestine’s future will be determined by the strength of its children.  Current Palestinian economic strategies, however, do not consider how their policies impact child welfare.  Most of these reports recognize the importance of primary health care and education for child development, but they fail to consider how particular macroeconomic strategies influence healthy child growth.  Recognizing these linkages between macroeconomic policy and child welfare is particularly important in Palestine given its skewed age distribution.  The difficulty is that the returns from a child-focused policy often are not realized for many years.  If Palestinian economists and development analysts continue to ignore the effects of their programs on children, however, they are only hindering the sustainability of Palestinian development.  The goal of this paper is to begin to elucidate the impact economic polices have on the welfare of Palestinian children.  It is our hope that this process will enable policy makers to devise the child friendly economic plans that will foster development and strengthen tomorrow’s parents, laborers, and decision-makers.
The framework for this paper is two-fold.  First, the Convention on the Rights of the Child (CRC) dictates that government’s must use “the maximum extent of their available resources” to ensure a child’s right to survival, development, protection and participation.  Although the CRC stresses the need for strong governmental action, they do not elucidate the exact processes governments should undertake to guarantee children’s rights.  Palestinian policy-makers must determine on their own the level of resources they are willing to commit to ensure the articles of the CRC.  The costs of creating vibrant and educated children are high and necessitate spending trade-offs, but such child centered investments will have great social and economic returns in the long run.
This paper is also guided by the belief that economic growth must be structured around human development.  Economic development that does not expand a population’s human capabilities is simply unsustainable.
 This paper is by no means a comprehensive assessment of how economic policies impact child welfare.  In fact, it is meant to be more of a call to action than anything else.  More in depth analyses are needed to adequately identify how specific policies impact children.  Through such a comprehensive analysis, development practitioners will know which groups are most at-risk and policy-makers will better understand the long-term impacts of their economic plans.  Creative policies can then be established to help establish a vibrant child and a vibrant economy.

Economic Growth.
The positive correlation between economic growth and human development is well documented.  Nearly every indicator that could be used to measure a child’s “right to life, survival and development” (Article 6 of the Convention on the Rights of the Child) shows that countries with higher per capita income have greater child welfare than poor countries.  The causation, of course, goes in both directions: higher incomes are good for children and healthy, educated children are good for economic development.  What must be realized, however, is that economic growth is far from enough.  There are numerous examples of countries with similar per capita incomes, but extremely divergent child development.  Cuba, for example, has an under-five mortality rate (U5MR) of just 10 deaths per 1,000 live births, which is less than half of the U5MR of Mauritius (23/1000).  This is the case even though Cuba’s per capita GDP ($3,100) is less than a quarter of Mauritius’ GDP per capita ($13,294).   Per capita income in and of itself means little; solid human development depends on an equitable distribution of income, access and information.
 The rhetoric of the Palestinian Development Plan 1999-2003 (PDP) is good.  The authors recognize the importance of considering human development when devising economic strategies.  In fact, the report stresses that “human resource development is not merely a goal to be achieved, rather it is the principle driving force for the realization of development.”   The methods outlined to achieve this ‘human resource development,’ however, are potentially problematic.  First, the PDP takes a limited perspective on what human resource development actually is.  While the report mentions the importance of health care and education, there is no deep understanding of the impact their planned policies will have on children.  A main section of the PDP, for example, conjectures three development scenarios along which Palestine may develop.  These scenarios are differentiated by political conditions and economic constraints, but do not consider how various shifts in economic policy will affect child growth and development.  Although political conditions will undoubtedly shape Palestine’s development future, sound investments in children will have just great, if not greater, impacts on Palestinian growth.  
A second concern derives from the PDP’s statement that, “there is an international consensus with regard to the type of economic and social policies which need to be implemented if high rates of growth and development are to be achieved.”   Presumably, this statement refers to the neoliberal structural adjustment policies that have swept across the developing world over the past two decades.  The “international consensus” that the PDP refers, however, is not ubiquitously in favor of structural adjustment.  In fact, 72 percent of the countries that implemented structural adjustment programs (SAPs) from 1978-1995 suffered a rise in unemployment.  More often than not, countries that implemented these SAPs saw real wages fall, income inequality worsen, food production decline, debt burdens increase, and substantial poverty remain.   Reducing internal and external deficits, decreasing government expenditures, and bolstering the private sector, policies these SAPs dictated, can improve a nation’s economy, but policy makers must be aware of the potential human costs that can accompany these potentially austere programs.  
If the PDP’s rhetoric of human resource development is to become reality, the rights of children highlighted in the CRC must be incorporated into Palestinian fiscal planning.  The CRC guidelines for child focused development stress that budgetary analyses need to be carried out to determine the linkages between economic policy and child welfare.  In its analysis of other countries going through economic transitions, the CRC found “that groups of children in both poor and rich countries have been victimized by sweeping measures to curb inflation and encourage economic growth.”   In order to prevent a similar degradation of child capabilities, Palestine must both incorporate children into development strategies and examine, line by line, the effects of the yearly budget on child welfare.   If such policies are not undertaken, development strategies aimed at growth and human development may actually hinder the economic and human potential of Palestine.
The PDP plan for foreign investment, for example, is cause for alarm.  The PDP states that Palestine must work to provide “investment guarantees against all kinds of risk” for foreign investors (italics added).  Although the need for foreign investment is important and Palestine’s desire to open its borders understandable, such a laissez-faire investment policy can lead to serious social and economic problems.  The East-Asian economic contagion proved that foreign capital is fickle and may flee at any point.  The countries that were least affected by the East Asian meltdown were those with capital controls.  Foreign investment in these countries was not able to flee with ease, buffering the country from economic dangers.  Even more troublesome, is the potential societal degradation that can accompany such an open environment.  A focus of Thailand’s development program, for example, was increased tourism (a policy also espoused by the PDP), but this opening of borders led to serious social problems.  Rural areas were left undeveloped and the disparity in income between the countryside and the city led to increased sexual exploitation of children, greater corruption and higher and higher rates of AIDS.  Quick growth schemes (e.g. casinos) can have serious long-term repercussions.
The Palestinian potential for development is high.  Various estimates place the assets of the Palestinian Diaspora between $40 and $80 billion.  Bank deposits, moreover, have consistently increased over the past five years.  In order for this income to be fully utilized via loans and investment, the political environment will have to improve.  In the meantime, however, Palestine can further develop its human and social capital by focusing on the rights, health, and needs of children.  It is this group that will provide the foundation for Palestine’s future economic growth and human development.
What Palestinian policy-makers must realize is that there is no fast and easy way to develop.  Healthy economies and populations take time to nurture and support.  To become a strong economic player in the global economy takes a strong domestic sector and population.  Simply put, Palestine must rely mainly on itself.  By increasing investment in children, Palestine can begin the sustainable and socially responsible development path toward future economic strength.
 With a real GDP growth rate of –2.4 percent, a trade imbalance of 2.8 billion dollars (40% of GDP), and declining private investment rates, there is clearly a need to stimulate the Palestinian economy.  The economic goals of PDP are to lessen unemployment, generate enough savings to finance investment, and produce enough exports to pay for imports.  Children will benefit from these policies, but only if they are undertaken carefully.  Projections and models of how particular fiscal and structural policies affect the well being of the child are in urgent need.  These projections must not concentrate only on institutions, but also the processes that guide those institutions.  It is not enough to say, for example, that more schools are needed.  The analysis must examine the processes that will make that school a catalyst for healthy child development (e.g. quality of the teaching and creativity and availability of the curriculum).
Economic decisions, moreover, cannot occur in a vacuum.  The hierarchy of decision-making must be elucidated so academics, NGOs, and child rights advocates can contribute to policy discussions.  Without such a broad developmental dialogue, misguided policies that seek only short run growth (or even just personal gain) will be more common.  

Dependency on Israel.
 Due to their close geographic location and their isolation post-1967, the Israeli and Palestinian economies are closely tied in terms of employment, markets, and monetary supply.  However, this is far from an equal relationship; more than any other factor, Israeli policies have hindered Palestinian economic and human development.  If examined against other nations, the level of Palestine’s human development (literacy, health, level of poverty) should translate into a per capita GDP that is five times greater .  Israeli restrictions on the interflow of labor and goods have had dramatic repercussions on the Palestinian economy.  From 1993 to 1997, for example, the Israeli border was closed for a total of 307 days, costing the Palestinian economy nearly $3 billion.   Despite the fact the Israel agreed to employ at least 100,000 Palestinians during the Economic Protocol, these closures have decreased the number of Palestinians working in Israel from 116,000 in 1992 to just 28,000 in 1996.  In percentage terms, 26 percent of the Palestinian labor force was working in Israel in1993, but this fell to just 10 percent in 1997.   With Palestine unable to absorb this influx of laborers, the closures increased Palestinian unemployment, weakened social capital, and lowered the demand for labor - decreasing wages.  Moreover, by increasing the levels of poverty, the closures constrained social spending and forced donor support to concentrate on short-term poverty alleviation programs, instead of long-term capital development. 
 Clearly, children are seriously harmed by these conditions.  Child poverty increases, as does the potential for societal violence.  The long-term social and mental consequences of these policies have not been sufficiently researched, but it is clear that policy-makers must devise means to buffer the Palestinian economy and society from such troublesome structural shocks.  One possible tool to alleviate the shock of closure is for the PNA to establish a limited unemployment insurance program that targets workers who had been employed in Israel.

Cycle of Poverty.
 The most troubling economic and demographic problem in Palestine is the number of poor and vulnerable.  In 1997, 38.2 percent of Gaza and 15.6 percent of the West Bank lived in poverty.   Children are especially vulnerable to poverty; 54 percent of all of the Palestinian poor are under the age of eighteen.  The most troubling finding from these statistics is the clear cycle of poverty within Palestine: poverty breeds poverty.  Uneducated families with large numbers of children are the most likely to be poor.  This vicious cycle of the most marginalized population producing the greatest number of children has serious social and economic consequences.  These children do not receive adequate health care or schooling and are unable to find jobs (Palestine’s unemployment rate is over 20 percent).  The lack of services and opportunities for this group increases mental strife, enhances the possibility of divorce, weakens human and societal capital, and reinforces a continued cycle of vulnerability.  If these cycles of poverty remain unchecked, societal violence is bound to increase and the possibility of a civil crisis will grow.  These vicious cycles of poverty, however, can be transformed in virtuous cycles of human development.  If the most marginalized sectors of Palestine are targeted with education, job creation, and health care (both mental and physical health), they will have fewer children, find jobs more easily, and the density of social spending will increase.  The alternative is increased growth rates, greater poverty, and potential crisis.
Given Palestine’s skewed age distribution and the likely return of Diaspora Palestinians, a great influx of workers will soon enter the Palestinian economy.  Job creation is vital, but it must be approached with a long-term vision.  Palestine’s greatest natural resource is its people.  With increased human development, Palestine’s relatively cheap labor will encourage foreign investment.  The competition for foreign capital is fierce, but Palestine can create a comparative advantage by increasing the quality of children’s education and health care.  A healthy, highly skilled, and relatively low wage labor force will stimulate investment and boost child development.  Given Palestine’s human and societal capital it could become a financial center (integrating regional stock markets, center for currency trading), an information-technology hub (off-shore information processing, software engineering), or a leader in professional services (law, insurance, consulting, education, specialized medical treatment).   Policy-makers should develop a socially responsible development goal and then provide today’s children with the inputs they need to serve as a foundation for this goal.  This approach to development and child welfare is socially responsible and sustainable and will translate into long-term economic growth.  Cost-benefit analyses are needed in order to elucidate further the quid pro quo of social spending and economic growth.  

Donor Support.
Donor countries committed $5.2 billion in assistance to Palestine between 1994 and 1998.  Although this resource is of vital importance to Palestinian development, a number of factors limit its beneficial impact.  First, there is no central fund to consolidate, prioritize and coordinate donor support.  Funding arrives through a multiplicity of channels, complicating economic planning and preventing effective fund targeting.  Without Palestinian prioritization, moreover, these funds often are not directed towards clear developmental concerns, reflecting instead the priorities and interests of the donor community.  Palestine is also lacking the organizational strength needed to absorb and efficiently use donor funding.  Due to the political environment, the inefficiency of past donor spending, and limited Palestinian institutional capacity, institutional donors have only disbursed about half of their total commitments. 
A second concern is that a substantial percentage of this aid comes in the form of in-kind support and technical assistance, which ends up returnin to the donor country.  Most troubling perhaps, is the current tendency for these funds to be given as loans.  Approximately a quarter of all donor commitments have come in the form of loans (~ $500 million, not including inflation).  Debt not only burdens future generations, it also opens Palestine to repayment conditionalities that may not be in the best interest of Palestinian children.  Given these factors, it is not particularly surprising that the Palestinian Human Development Report found that 76 percent of Palestinians believe international aid does not benefit all Palestinians equally.  Donor support can potentially help lay the foundation for a long-term, sustainable, and child-friendly economic plan, but it must be managed more efficiently.  

Public Expenditure.
Expanding the capabilities of children takes governmental commitment.  The state must have a forward looking notion of the what it wants to achieve and must decide the degree of services and support it is willing to commit to this achievement.  Currently, public spending trends are going in a sad direction.  The donor community is increasingly being relied on to provide services and the growth of public health and education spending is substantially less than the growth for telecommunications or culture.  Current spending strategies, moreover, do not seek to alleviate and cure social difficulties, but rather are in place to just maintain the mere survival of the most disadvantaged groups.  The poor population is not a consistent group; it fluctuates by location and economic circumstance.  Although it is vital to help the poorest of the poor escape poverty, it is also important to support the middle class, lest they fall into poverty.  If the vicious cycles of poverty in Palestine are to convert to virtuous paths of growth, Palestine must determine which sectors and regions of the population are most at risk and then create innovative policies to address their particular concerns.
If we look at the poorest districts of Palestine (Gaza and Jenin), we find that these districts also have the highest reported deaths under the age of five, the largest number of students per teacher, and the highest birth rates.  The most disadvantaged are not provided the best services, reinforcing Palestine’s cycle of vulnerability and poverty.

The disproportion of children in Palestine is not necessarily a negative trait.  If given a suitable environment, the opportunities for these children are unbound.    It is our hope that this paper will spark the need analyses and debate that will clarify how Palestine can target, support, and enhance its child population.  By focusing on the human development of the today’s children, policy-makers can establish a ??foundation for a healthy, vibrant, and economically successful society.