Conventional wisdom has it that foreign, direct investment will increase the economic well-being of a population—if it is introduced with the expertise to make it work and if institutional reforms facilitate its effectiveness as well as domestic economic

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Conventional wisdom has it that foreign, direct investment will increase the economic well-being of a population—if it is introduced with the expertise to make it work and if institutional reforms facilitate its effectiveness as well as domestic economic activity. Sounds reasonable, no?

But that is not what happened in Palestine circa 1920 to the 1940s, according to Nadan, a senior researcher at the Dayan Center at Tel Aviv University. The British Mandate government in Palestine, he argues, failed its responsibilities. The proof, Nadan tells us, is in the statistics: No measurable economic growth occurred during the Mandate period. Not only did the British not generate economic betterment, they messed up an already efficient economic system, which had been working well for the Palestinians. Adding insult to injury, the growing Zionist enterprise in Palestine, he asserts, was the second part of the double whammy Palestinians were forced to endure.

Nadan's thesis fails to convince, however; conventional wisdom wins, and it wins big. The heart of his research focuses on a critical analysis of two major studies: (1) Charles Kamen's findings that irrigation systems were adopted by Palestinians during the Mandate, many of them financed by capital accruing to Arabs from land sales to Jews,[1] and (2) Jacob Metzer and Oded Kaplan's findings of high average rates of economic growth for Arab Palestine during the Mandate period.[2]

Nadan's dismissal of Kamen's findings is somewhat surprising because Nadan's own Table 2.1 shows that by 1947 approximately 10 percent of cultivated lands of "Arab and Jews" were irrigated. Nadan's category "Arab and Jews" appears in the table alongside "Mainly Jews" and "Mainly Arab," so that Nadan himself does not really know how much Arab land was actually irrigated. Furthermore, he does not address this issue. His attack of Kamen, it would seem, is simply unwarranted.

Nadan's rejection of Metzer and Kaplan's findings that substantial growth in the Palestinian economy occurred under the Mandate is no more convincing. To make his case, he painstakingly reorganizes the Metzer-Kaplan data and adds new and interesting data to the mix to generate a growth model of his own that contradicts the Metzer-Kaplan results. Voila. It is an impressive piece of work except for the fact that he substitutes his own set of arbitrary modifications to the data, which allows him to conclude that the Palestinian economic growth rate was pretty much flat. The reader must accept his unconvincing modifications to accept that finding. The Metzer-Kaplan argument that high rates of growth occurred "on the average" makes more sense as well from a purely theoretical point of view. The human development factor—acknowledged by Nadan—coupled with the relatively high-intensity economic activity of the parallel Jewish economy would be expected to have some spillover effects on the Arab economy. If nothing else, heightened Jewish demand for Arab output would have a buoyant effect on Arab rural incomes. This Nadan readily acknowledges but insists that the net effect, after considering land sales to Jews, was approximately zero.

So what about these land sales? Nadan makes repeated references to increased unemployment caused by land sales to Jews yet provides no supporting data. Surprisingly, his own Table 2.3 (number of dunums [about 1,000 square meters] under Arab cultivation) shows a decrease of four-tenths of 1 percent over the years 1935 to 1945, or approximately four one-hundredths of 1 percent per year. Not likely to generate much economic consequence.

But what would make Nadan think that British intervention failed? He accuses the British of harboring false notions about the "irrationality" of Arab decision-making concerning such matters as improvements in land tenure and use of capital. Nadan believes the British entered the region not appreciating the effectiveness of the traditional Arab economy. To induce Arabs to act more "rationally," British policy introduced land and credit reform that, he claims, served to undermine an otherwise efficient system of resource allocation. Nadan betrays naivete suggesting that Ottoman credit institutions were efficient in any market sense or that the Ottoman land tenure system was conducive to productive efficiency.

All said, Nadan's work offers an interesting and even illuminating approach to the Arab economy under the Mandate. He would have been better served had he not included an irrelevant last paragraph attributing the lack of any sustainable progress during the Mandate period to the "immaturity of Arab and Jewish leaders" and even projecting this idea to the present, citing the same equivalence of immaturity for the problems that continue to plague the land. This paragraph possibly provides a clue to Nadan's ideological blinders.

[1] Charles S. Kamen, Little Common Ground: Arab Agriculture and Jewish Settlement in Palestine, 1920-1948 (Pittsburgh: University of Pittsburgh Press, 1991).
[2] Jacob Metzer and Oded Kaplan, Mesheq yehudi u-mesheq 'aravi beerez ishrael: Tozar, ta'asuqa u-ezmihah betqufat hamandat (Jerusalem: The Maurice Falk Institute for Economic Research, 1990).