World Development,

Pergamon
w

Vol. 25, No. 8, pp. 1243-1255, 1991 0 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0305-750x/97$17.00+0.00

PII: SO305-750X(97)00028-4

State Formation Emergence

and International

Aid: The Authority

of the Palestinian

HILLEL FRISCH and MENACHEM

HOFNUNG

The Hebrew University of Jerusalem, Israel

Summary. - Thirty years ago, Samuel Huntington criticized Western aid policy toward new states that
assumed that economic improvement in the standard of living coupled with democratic institutions would yield a more stable and democratic state-building process. An extensive political economic literature on the developmental state has since emerged that explores the complex relationship between state capacity, economic development and democracy, much of it critical of both the economist assumption, and the importance of democracy in achieving sustainable growth, at least in the initial stages of statehood. This literature, however, does not specifically relate to the impact of international aid affects state consolidation despite its critical role in the initial stages of new states. The paper explores how international aid affects on new state formation in the 1990s as reflected by the Palestinian and more specifically whether Huntingtons criticism is valid today regarding the experience, international aid regime toward the Palestinian Authority established in May 1994. It shows that international aid was initially based on economist assumptions, changed course to reflect the importance of the state, and now must seek a better balance between the centralization of power, developing state capacity, and promoting civil society. Key words - democracy, Authority, World Bank economic development, international aid, state-building, Palestinian

1. INTRODUCTION
Three Western decades ago, Samuel Huntington criticized aid policy in new states in Asia and Africa

for assuming that economic improvement in the standard of living coupled with democratic institutions would yield a more stable and democratic statebuilding process (Huntington, 1968, pp. 2-l 1). Since the 1980s an extensive political economic literature on the developmental state and state autonomy has emerged that supports Huntingtons assertion at least in the initial stages of statehood (Haggard and Webb, 1993; Haggard, 1990; Haggard and Kaufman, 1992; Johnson, 1982; Johnson, 1987, pp. 136-164; Wade, 1990; Bradford, 1986, pp. 115-128; Leftwich, 1995; Amsden, 1989, 1985, pp. 78-l 06; Sinder, 1990). The question is whether donor states and international financial institutions have learned from the decolonization era to better serve state-building in the emerging states of the 1990s. The massive aid effort to the Palestinians offers a unique opportunity to investigate this question. The historical handshake between Israeli Prime Minister Rabin and PLO leader Arafat on the White House lawn concluded the Declaration of Principles (DOP) which envisaged the creation of a Palestinian

territorial autonomy as being indispensable in defusing a potentially volatile political situation. On October 1, 1993, less than three weeks after that handshake, 22 donor states, major international financial institutions, and states neighboring the West Bank and Gaza, agreed to launch a $2.3 billion program of aid to foster the peace effort toward the Palestinians. Over 30 states are presently committed to funding projects in the West Bank and Gaza, while the two leading international financial institutions, the World Bank and the International Monetary Fund (IMF), and over 60 foreign and 1,200 Palestinian nongovemment organizations (NGOs) are attempting, along with the Palestinian Authority *Support for this study was provided by the Israel Science Foundation and the Harry S. Truman Research Institute for the Advancement of Peace at the Hebrew University of Jerusalem. It is a pleasure to thank Sheldon Gellar, Ian Lustick, Ira Sharkansky, Avi &gal, Sasson Sofer, Etel Solingen, Crawford Young, and the anonymous reviewers for their extremely valuable comments. We would like to thank Uri Resnick, who did almost everything: research assistance, typing, editing, and reading page-proof. Our thanks, also, are extended to Noam Shapira and Haim Izhaki for their research assistance. Final revision accepted: February 25, 1997.

1243

1244

WORLD

DEVELOPMENT

(PA) established in May 1994, to transform these commitments into reality. The timing of the conference alone, so soon after the signing of the DOP, indicates that the international aid drive was clearly meant to bolster the PA which the accords envisaged. Many parties to the effort clearly hoped that the PA would form the nucleus of the future Palestinian state (Golan, 1994; see also the declaration of the Arab States Meeting in Cairo, June 22, 1996). The following, article explores to what extent international aid to th Palestinians has promoted the power of the PA and its capabilities to regulate, extract, and allocate resources in society, and insofar as this is so, to what extent it has been at the expense of civil society and private enterprise (Migdal, 1988). The question should be viewed in the context of the PAs present efforts of state-building which are taking place at a feverish pace. Hierarchically, from top to bottom, the PA consists of a cabinet chaired almost always by President Arafat, the managing director of the Office of the Presidency and the ministers. These ministers, in turn, preside over ministries typical of any state-a Ministry of Finance, a Ministry of Economics, a Ministry of Planning, a Ministry of Information, and, more recently, a Ministry of Interior. Completing the organizational portrayal of a state-in-the-making are an impressive array, on paper at least, of functionally specific state authorities including a Palestinian monetary agency, a bureau of statistics, an environmental control agency, and a civil service commission. The PA not only attempts to look like a state, but also to behave as a highly centralized one. Taking its cue from Israeli practice, the cabinet holds meetings every Saturday. and its decisions and agenda are relayed to the local Palestinian press by the government spokesman. A continuous barrage of official announcements, reflecting typical govemment business, attempts to connect the citizen to the state. The range of matters these announcements cover include: tax matters, competition for civil service positions, tender bids for projects by the different ministries, exhortations to citizens to pay electricity and telephone bills, warnings against building on state lands, and information regarding official policy positions released by the Ministry of Information. The PA, without an official foreign ministry (it is called instead the Ministry of Planning and International Cooperation), manages nevertheless to conduct more foreign policy and to be visited by more world leaders and officials than many a state. Moreover, in accordance with the Cairo Agreement, the PA has also secured territorial inviolability from Israel for areas in Gaza where there are no settlements or roads. In short, the PA, as a transitional entity, is probably more of a state than

many more which period

juridical states in Africa,* and certainly so than many colonies during decolonization like the Palestinians today, went through a of transition toward an unknown future.

2. MIX AND SEQUENTIALITY? SEEKING THE OPTIMAL STATE FORMATION PARADIGM There are two essential and interrelated issues which concern international aid and the creation of a new political entity. One has to do with the question of sequence. What should come first-political centralization of power or economic development? The second issue relates to mix-the degree of autonomy the state should posses relative to society; the proper ratio between investment in non governmental developmental tasks on the one hand, and building and maintaining state bureaucratic capacity on the other; the degree of selectivity the state should undertake in promoting economic tasks; and the importance of cultivating civil society and democratic governance as a means of restraining the state. These questions receive different answers depending on which of the two dominant paradigms one follows regarding the relationship between the state and economic development. The liberal paradigm embedded in a democratic ethos. holds that democracy and economic growth are compatible and ultimately make for the most sustainable and stable political system (Rowen, 1995; Olson, 1993). The developmental paradigm holds sequence to be crucial to achieving economic sustainability and political stability. Strong autonomous and even authoritarian rule is better than uncontrolled and unmanageable democracy (Haggard and Webb, 1993). This article examines what has been learned regarding these issues from both successful and failed cases of state formation.

(a) Sequence The question of sequence was addressed by Samuel Huntington and more specifically regarding international aid by Packenham in his work on United States foreign aid (Packenham, 1973, pp. 45). Huntington challenged the belief that the promotion of economic growth would lead to political stability, or, to put it in more theoretical terms, that political modernization and social modernization went hand in hand. To the contrary, he argued that economic growth in fledgling states generates greater expectations and demands for political participation than new weak states could meet. Increases in economic welfare, therefore, only increased political instability. Huntington stressed instead the importance of institutionalizing central

STATE FORMATION

AND INTERNATIONAL

AID

1245

authority and expanding its power to accommodate growing pressures for representation and reform in new states. He pointed to the paradox between the call to initiate reforms and implant democratic structures of government simultaneously. Reform, he argued, necessitated the centralization of power while democratization led to diffusion and stagnation. Such stagnation could only be a prelude to praetoriansim. According to Thomas Callaghy, the United States is ominously resuscitating this economist assumption as part of the new world order (Callaghy, 1994, pp. 239) It is interesting to explore whether the international aid effort to the Palestinians is part of this ideological offensive.

(b) Mix The second idea relates to mix-the preferable balance between the autonomy of the state and the ability of civil society to limit its penetration. It also relates to the issue of developing, institutional capacity versus the implementation of tasks (i.e. economic welfare through projects), and the controversy concerning task selectiveness and task comprehensiveness. Peter Evans (1992) and Thomas Callaghy (1989), two leading contemporary scholars on state formation and economic reform, have raised these issues repeatedly in the context of structural adjustment but it obviously bears on issues of statecreation. The question of mix has emerged as the result of two waves of conceptualizing the state. Huntingtons advocacy of the one party state reflected the beginnings of the first wave. The oneparty state would be sufficiently strong to weaken society in a way that state institutionalization would outstrip demands for participation. Huntingtons basic ideas became a major theme in Tillys (Tilly, 1975) pioneering work on the emergence of states in Western Europe, and in the later works of the state autonomy school (Skocpol, 1985; Evans er al., 1985; ODonnell, 1973). While Huntington explained the need for the strong state in functional-structural terms, Tilly based it on historical grounds. Both concurred that at least in the initial stages of statehood, new states had to be authoritarian to survive and prosper. It was not long before the democratic revanche, in which the weak state-strong society paradigm replaced the paradigm of strong state autonomy. The second wave of conceptualizing the state came in the wake of the economic and bureaucratic failures of the absolutist Communist states, and the disengagement from the state in Africa (Azarya and Chazan, 1987). Morally, Western scholars were appalled by the excesses and staggering incompefence of Mobutus Zaire (Young, 1994) and the brutality of some of the Arab states and Iran (which,

incidentally, do not even come close to the brutality of European state formation) (Jackson, 1990). It soon became fashionable to advocate a minimalist regulatory state with a strong civil society, albeit more so by economists than political scientists (Evans, 1992, pp. 142-149). Theories relating to economic development closely paralleled political analysis of the relationship between state and society. State capitalism became a nasty term, as international credit and funding agencies, to whom an increasing number of indebted states had to turn, vigorously advocated privatization and structural adjustment based on market principles. The weak state-strong society paradigm became dominant in the literature. The weak state-strong society paradigm, however, yields neither the economic success nor the democratic consolidation achieved by the Asian newly industrialized countries (NICs), the symbol of the truly strong infrastructural state. Karen Remmer and others might demonstrate that redemocratized regimes in South America perform no worse, and perhaps even better than the totalitarian regimes they replaced (Remmer, 1991, p.787; Sirowy and Inkeles, 1990; Przeworski and Limongi, 1993; Olson, 1993) but their successes pale before the performance of the Asian NICs. who were for a long period and perhaps still are, authoritarian (Leftwich, 1995, p.409). Although, over the last decade, many authoritarian regimes were overthrown or went through a peaceful process of democratization, the Huntingtonian dilemma is still with us. Certainly most authoritarian states are unsuccessful but some have simply been more successful than most democratic states in the Third World. It is at this point that Evans, Callaghy and others make their most conspicuous contribution. Looking at the Asian NICs experience, Evans enjoins us to enter a third wave of state-society conceptualization. In the economic sphere it means recognizing the role of the state in economic development projects and the importance of establishing effective bureaucracies to initiate them. Evans calls it state capacity. States must be autonomous, embedded rather than insulated from society. They must cultivate a small efficient and elitist bureaucracy that can promote private investment and economic development: Recognition of the importance of state capacity, not simply in the sense of rhe prowess and perspicacity of technocrats within the state apparatus but also in the
sense of an institutional structure that is durable and effective, is characteristic of the third wave of thinking about the state and developmental (Evans, 1992, p. 141).

Finally Evans argues that the state must not only expend energy and resources to developing state capacity; it must also limit the number of tasks in

1246

WORLD DEVELOPMENT

which it is involved (Evans, 1992, p. 151). The central theme of the new wave is the importance of the strong state-not, to be sure, the state with despotic power based on coercion but one possessing infrastructural power based on state capacity aria norms of rule of law (Mann, 1986, p. 110; Onis, 1991, p. 121). The problem, however, with the developmental paradigm developed by Evans and others, is that it is predicated on successful cases of state formation where a determined developmental elite (Leftwith, 1995, p.405) absent in most Third World states, firmly held the reins of power. In most of the Third World, a predatory leader or elite and violent political opposition often prevail instead. This is why quality of governance varies more so among authoritarian than democratic regimes (Haggard and Webb, 1993, p. 146). Thirty years ago, James Heaphey, in an important but little noted article, pointed to Abd al-Nasrs failure to govern Egypt based on a managerial approach because it did not address the real political issues facing the state (Heaphey, 1966). As Jackson and Rosberg pointed out, the state system ensures their external survival even when they fail in state-building tasks (Jackson and Rosberg, 1982, p. 2). Civil society is necessary in states not fortunate enough to be lead by authoritarian developmentalminded leaders. It must develop public values that reflect what state and society should be, provide the feedback which the state needs to correct policies, participate in the provision of public services, and above all control state rent-seeking. Because the cultivation of civil society increases demands on the state and the tasks it must perform, there is a tradeoff between the developmental cost of civil society and the benefits derived from limitations it places on state rent-seeking. If the cost of such task expansion is less than the rent-seeking it can prevent, it is well worth the investment. There are four basic dimensions, then, in engineering the successful developmental state. First, there is the issue of sequence. The accumulation of power sufficient to monopolize violence and ensure a high degree of personal security is more important and prior to anything else. Without state centralization of power there is no reform, without stability there is little private initiative and investment. Second, containing the accumulation of power cannot be left to the fortuitous emergence of a non-rent-seeking autocrat (however important his emergence might be). It is rather to be achieved by the cultivation of a civil society strong enough to prevent rent-seeking and provide necessary feedback for evaluating the effectiveness of state policies. This is especially important in the Palestinian context where the chances that Arafat will follow in the footsteps of Singapores Lee Kuan Yew are not very

promising. Third, bureaucratic capacity must be given priority over projects designed to achieve immediate but short-term increases in economic welfare. Fourth, the state must carefully select the tasks it takes upon itself and thus augment bureaucratic capabilities of defining and implementing strategic economic growth policies.

3. INTERNATIONAL AID AND STATE FORMATION Can the fledgling state achieve these basic tasks alone? It is unlikely, because meeting these objectives involves serious internal contradictions. One problem has already been discussed in reference to civil society. Since effective civil societies give voice to a plural constituency, they are also likely to demand a diverse array of public goods that tax state capacities and divert resources from long-term development projects. Sequencing creates a problem when a strong state comes into being. How can the state that instills fear early on in the state-building process, facilitate the emergence of civil society? Similarly, there is a tradeoff between state autonomy-an important ingredient in a developmental strategy, and the accountability demanded by civil society. It is in alleviating these problems that the international aid regime may contribute most. Donors can use aid to build up the state apparatus, establish bureaucratic capacity, demand accountability as a means of promoting bureaucratic competence, expertise and autonomy, fund civil society, and try to develop an agreed upon public agenda that will limit tasks, at least at the initial stages of state-building. Above all, it is important to establish the right mix after the sequencing problem has been solved.

4. THE PHILOSOPHY OF ECONOMIC AID AND PROGRAM DESIGN TO THE PALESTINIANS To what extent has the philosophy of international aid to the Palestinians and program design conformed to this third wave paradigm of state formation? To answer the question it is important first to acknowledge two of the almost unavoidable problems associated with international aid-particularly political aid-the volatility of international aid flows and the expansion and contraction of the magnitudes of these flows. Dramatic, unanticipated events reroute international aid flows on short notice, much as capital flows from insecure to secure areas. The signing of the Declaration of Principles aroused great expectations. There was tremendous pressure on the part of international financial institutions to act quickly to capitalize on the expansion of aid flows to the Palestinians before these were to

STATE FORMATION

AND INTERNATIONAL

AID

1247

compete with another focal point of international aid. This means devising a program with short-term economic objectives, comprehensive rather than selective (to make sure that the funds are expended), involving projects that are economic rather than political (the building of the central bureaucracy, for example) upon which there is a high degree of ideological consensus among donors. There is, however, every reason to believe that sustainable growth in a hitherto stateless society will be a longterm process, more political than economic (and thus less morally attractive) and more selective than comprehensive.

(a) The sequencing dimension One of the consequences of the aid flow phenomenon is its impact on sequencing. A general overview of the philosophy of economic aid to the Palestinians arouses a strong sense of d&j& vu. The same economism that Huntington so inveighed against in the 1960s-the belief that making tangible economic welfare improvements increases political stability, and as such, is more important than developing the power and capacity of the central authority, pervades the present international aid effort as well. The liberal perspective caters to the bias of domestic constituencies and thus facilitates aidgiving. While the World Bank (1994) report entitled The Emergency Assistance Program for the Occupied Territories underlined the need to achieve long-term sustainable economic growth, the program it proposed was centered, at least initially as the title suggests, around an emergency assistance program (EAP), which focuses on the importance of increasing economic welfare quickly. According to one prominent World Bank economist, the main objective was: to provide tangible benefits to the Palestinian population quickly, equitably, and efficiently, while laying the
foundation for sustainable term (Garg and el-Khouri, development 1994, p. 7). over the long-

Although striking a balance between economic welfare, political stability and long-term economic development is desirable, the program in fact gives priority to the former over the latter. Thus, Abdallah Bouhabib, Middle East advisor to World Bank Vicepresident for the Middle East describes the EAP in
the following terms:

The World Bank, albeit with the help of both Palestinians from the PLO in exile and the Occupied Territories, reasoned that the most important task was to improve economic well-being quickly. The PLO agreed to this strategy, obviously to strengthen the legitimacy of the Palestinian Authority which it hoped to set up and which it assumed would be the building block for the future Palestinian state. Otherwise, what interest would it have to diffuse a potentially explosive political situation when the instability generated by the Intifada served its interests so well in the past? When such economic welfare failed to materialize, however, it hardly resulted in a visible decrease in either popular support of the peace process or mass support for the Palestinian Authority, as monitored by Palestinian polling institutes. Nor did this economic failure manifest itself in defiant political behavior against the authority. Polling data during the period from the emergence of the Palestinian Authority to the summer of 1995 show surprising stability in the face of extreme economic flux (Ross and Said, 1995, p. 16). World Bank economists were so interested in achieving economic welfare gains that they emphasized the importance of working within existing international agencies in lieu of the emerging state. The first stage, then, of the Emergency Assistance Program (EPA), was to be an emergency relief project that makes use of all local available capacity for program implementation, including the UN system, NGOs, universities and research institutes (World Bank, 1994, p. 2). Even more indicative of the problem of sequencing is the fact that the Emergency Technical Assistance Program that directly relates to developing state capacity was to be initiated six months after the relief assistance aspects of the program were to come into being (Bouhabib, 1993, p. 66). Should not have the initial focus of the project been to develop the institutional aspects of state-building with corresponding allocations for that purpose, before embarking on economic welfare projects? Given the primacy of achieving and maintaining institutional capacity, a delicate and time consuming process, is there much developmental or political logic for such an EAP at all? (Table 1).

(b) The problem of mix-the marginality of the state and developing state capacity Political economists have criticized the World Bank and the International Monetary Fund (IMF) for overlooking the political-institutional aspects of development. Since most programs of structural adjustment called for the reduction of government and public budgets, one could scarcely expect these

[...I This particular program has a political element insofar as it is particularly important in this case for the people to see very early that their situation will improve because of peace. So the emphasis is on a lot of small projects with an immediate impact [... ] rather than on the kind of major projects we are usually involved in, whose benefits are far in the future (Bouhabib, 1993, p. 66).

1248 Table I. Emergency Assistance Program

summary (in millions of $US) Year 1994 1995

WORLD DEVELOPMENT

(EAP)

cost

1996

Total 600 300 225 75 1,200

projects that characterized the first wave thinking of the economic role of the state that might enhance its economic interventionist role?

Public investments Private sector Stan-up expenditure* Technical assistance Total

167 50 158 18 393

206 100 40 33 379

227 150 27 2s 478

(c) Task selectivin According to Evans, developing states and even more so states-in-the-making, need to select carefully and limit the tasks they undertake. It is plainly evident from what has already been presented, that the World Bank presented a comprehensive and complex small scale development plan that would tax the bureaucratic capabilities of the state bureaucracy. The root of this conception was, once again, the need to demonstrate quick tangible welfare gains. This meant acceptance of a program of hundreds of small infrastructure projects in sectors ranging from transportation to agriculture as well as emergency work provision arrangements.

Source: World Bank (I 994) *Start-up expenditure for 1994, includes Central Adminis tratiou Support of $108 million and $50 million for NGOs. Start-up expenditures for 1995 and 1996 include only NGO

support.
institutions to allocate resources to developing state capacities. Yet, this is indeed what critics have argued; reducing perhaps the volume of government involvement, but increasing its capacity to initiate economic policy and implementation, by improving bureaucratic and political performance (Evans, 1992; Callaghy, 1994; Waterbury, 1992). There are some indications that the World Bank had taken these criticisms to heart. Has this also been true of the Palestinian experience? While World Bank studies on proposed international aid to the Palestinians underscored the need to improve the institutional capacity of the governing authority, the importance of the state (for political reasons termed public administration), was remarkably marginal. The EAP allotted less than IO%, $108 million of a $1.2 billion program to start up costs of the PA, all in the first year. The economists assumed that a tax system developed by the PA would henceforth provide the fiscal basis of the PA. This sum was in fact less than the NGOs shared over the three years of the program. Ironically, little provision was made by the EAP to develop the institutional capacity for such a system. While the overview of the World Banks 1994 study claimed that good policy, would include (amongst other things)... a major strengthening of the administrative and policy-formulating capability of the emerging, interim self-governing authority (World Bank, 1994, p. 15), it was reluctant to finance these activities. Only 5% ($18 million) was allocated for technical assistance in the first year, $10 million of which specifically for institution building and training, compared to 50% for public investment projects, and 25% to the private sector. These figures reflect a philosophy that is ideologically committed to private enterprise, yet seeks to invest most in public infrastructure, and which pays lip service to the importance of developing Government capacity but is not willing to commit funds for that purpose. If encouragement of the market remains the key objective and institutional capacity, the second priority, why invest most in public

(d) Civil so&p The original EAP to the Occupied Territories shows awareness of the important role of independent NGOs in the development and maintenance of democratic norms in newly emerged states. Out of the $225 million allocated for recurrent and start-up costs, 52% ($117 million) were earmarked for NGOs. One of the objectives of the EAP was to make use of local capacity for program implementation, including the UN system, NGOs, universities and research institutes (EAP, 1994, p. 2). But local Palestinian NGOs (PNGOs), obviously, were only to receive a small part of total flows to the NGOs. The EAP included aid to create a legal and regulatory environment that would facilitate private investment (World Bank, 1994, p. 4).

5. INTERNATIONAL
STATE

AID FLOWS BUILDING

TO

(a) Sequence Even the most cursory comparison between projected aid flows in the EAP plan compared to actual disbursement, demonstrate to what extent political realities dispelled economist illusions. According to the plan, only $108 million of the $ I .2 billion (9% of the total budget) were earmarked for start-up costs of the PA. The reality was strikingly different. In the latter half of 1994 alone, disbursements for budget support equated $150 million, compared to a projected $108 million in the plan, accounting for 40% of total disbursement. The plan, moreover, assumed that the PA would be

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AID

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fully operational by early 1994 when in fact it was only established in June and July of that year. In other words, the sum that was envisaged by the plan to be sufficient for financing the initial necessary government operations covered, in reality. only four months. The propensity to subvene government expenditures became much more marked in the first five months in 1995, when $123 million of a total of $154 million was disbursed to pay salaries of the growing bureaucracy and security complex (AHLC, 1995, p.3). Judging from this trend the EAP will end up primarily a framework for setting up the state rather than for economic development. It is important to realize that EAP flows do not include considerable unknown amounts of bilateral aid to the Palestinians. From interviews with officials in the PA, however, it is clear that a very high percentage of bilateral aid flows directly to PA institutions.4 The transformation from liberal designs to Huntingtonian outcomes might have to do with the fact that once international aid is committed it becomes the province of foreign policy specialists who are interested above all in achieving political stability and believe that bolstering the political entity is the best way of achieving that goal (Figure 1). The number of civilian government employees has increased between May 1994 and April 1996 from 20,000 to 38,000 and security personnel from 9,000 to 22,000 (AHLC, 1995; Abed, 1995; Benda and Johnson, 1996). A special bilateral fund, the Hoist fund, named after the Norwegian Minister of
80 -

Foreign Affairs who hosted the secret negotiations that led to the DOP agreement, was set up to finance the operating costs of the PA, especially the salaries of the police forces (Figure 2). As of April 1995, this state bureaucracy consumes about half of the PA budget ($2 16 million out of $444 million budget for a nine month period, AprilDecember, 1995). This budget is covered mainly by the donor countries. With the expected transfer of additional authorities in the West Bank and the replacement of the Israeli army by Palestinian police in most major cities, this bureaucracy will easily grow by several thousand additional employees. According to the PA budget presented at the donors meeting in April 1995, salaries of the PA bureaucracy equated all internal revenues including Israeli-tax, Value-added tax (VAT) and customs transfers (PA Draft Budget, 1995). With the upcoming transfer of authorities, salaries alone would exceed Israeli transfers and internal revenues combined. International aid will probably cover the deficit by continuing to divert flows from more qualitative capacity building and public infrastructure investment. The international aid regime belatedly promoted the centralization of political power. This flexibility on the part of donors has helped solve the problem of sequence. Indeed, after some initial challenges to the authority of the PA, political order has been achieved, albeit at the cost of considerable violations of human rights (Human Rights Watch Report, 1995). In retrospect, one incident in particular proved to be

70 ~

60 -

50 -

40 -

.30 -

20 -

IO -

OEAP 94 Disbursements 94 EAP 95 Disbursements 9.5

Figure 1. Comparison between EAP allocations and actual, 1994-95 (according to investments, technical assistance, recurrent and sturt-up costs-percentage). Notes: 1994 EAP start-up ,jigures include NGOs .support of $50 million (13%); disbursements for J995-January-May; NGOs recurrent,financing for 1995 is not treated by the World Bank within the framework of support to the Palestinian budget. The World Bank data show commitments of $52 million and disbursements qf $37 million for NGOs recurrent costs, the bulk of which given by the European Commission.

1250
60,000

WORLD

DEVELOPMENT

cl
a

Police Civil

Force Bureaucracy Total

PA Employees

May-94 Figure 2. PA employees (May 1994-April

Sep-94

Apr-95

Apr-96

1996). Note: In August 1994 Isrurl transferredfive departments of the Civil Administration in the West Bank to the PA along with responsibiliw to pay the salaries of 12,500 employees. In January 1996 Israel transferred to the PA control over the ma& cities of the West Bank (not including Hebron).

the PAs trial by fire. On November 18, 1994 the police and undercover agents of the PA, perhaps premeditatedly, gunned down 15 Hamas supporters who were leaving a Gaza mosque. While the fundamentalists have pressed for a committee of investigation, and two have been established, the findings have yet to be publicized. Leaflets signed and distributed by Fath soon after the incident expressed no remorse over the deaths and placed the blame for the blood shedding squarely on their opponents. The size of the security forces no doubt. played a key role in restraining fundamentalists from acting directly against the Authority even after such provocations.

have set up in Jericho and Gaza. In these areas, the demands for reporting, accountability and transparency which served as a cornerstone of the coordinated international aid regime, are much more lax. A more realistic political assessment of the needs of state-building, one that would have conformed to the third wave paradigm, would have possibly enabled the donors to create a better balance between the goals of accumulating power, developing autonomous capacity, and cultivating civil society able to restrain the state. Instead, the international aid regime is almost exclusively concerned with bolstering the PA, as liberal illusions dissipated in the face of political realism. Thus, aid has facilitated the expansion of state power at the expense of the private sector and civil society.

(b) Mix This diversion of funds does not, however, conform to the proper input mix that leads to healthy state-building. A major victim of this diversion of flows was personnel development and enhancement of government capacity. In 1994, disbursement to technical assistance amounted to $55 million. In the first five months of 1995, this precipitously dropped to only $4 million. Another major casualty were the PNGOs, who according to the theoretical literature are to play the restraining role on the state. Though there are no exact figures on EAP flows to PNGOs, the overall breakdown suggests that little EAP funded money came their way. Increasingly, donors, especially European Union states, are expanding aid to the PA, or unilaterally financing special projects within the PA through special assistance offices they 6. ISRAELI FLOWS AND STATE-BUILDING When the economic agreement between Israel and the Palestinians was concluded, the economists who drafted it did not quite realize its political ramifications for Palestinian state-building and particularly how much it contributed to the centralization of political authority in the PA. The Paris economic agreement (April 1994) established a common customs zone between Israel and the Palestinians in which VAT on Israeli goods designated to areas under PA control, customs on foreign goods, and 75% of the taxes deducted from wages of Palestinian workers, would be transferred from Israeli tax and customs authorities to the PA. In order to protect Israeli industry from unfair competition, the

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agreement stipulated that the Palestinians could not reduce VAT taxes more than two percentage points below Israeli levels. or reduce customs below Israeli levels. Since Israeli VAT is one of the highest in the world (17%), and an estimated 80% of imports to the territories emanate from Israel. the flows directly to the PA are considerable; As of mid-July, 1995, Israel has transferred $126 million, approximately one-fifth of total inflows to the PA since its inceptionh Had there not been a customs union. the Palestinians would be able to collect only duties. The borders between Gaza and Israel are so porous that there would be little to collect. There is no better proof of its porousness than the sharp 45% increase in car thefts from Israel to slaughter houses in Gaza, Jericho and the West Bank since the Cairo agreement, where they are stripped for spare parts or resold to local inhabitants (Haaretz, 1995, May 9). Though the customs union agreement deprived the PA from developing another bureaucracy and potential network of patronage, the benefits accruing from such patronage are hardly likely to compensate, at least in the initial stages, for the inability to collect customs on Israeli or foreign goods. Only the construction of a deep sea port in Gaza and a guaranteed and fully developed land corridor highway to Gaza could change perceptibly the trade flows to Gaza and the West Bank and thus enable the PA to collect the customs directly. But, these projects, both of dubious economic worth, are barely at the drawing board stage. Of course, while these arrangements strengthen the PA domestically. they increase its subordination externally, in this case, to the dominant regional actor.

7. MEASURING STATE-BUILDING SOCIETY EXPANSION

AND CIVIL

Has the PA, then, become so powerful as to replace civil society? To answer this question a systematic analysis was made of news items and articles that appeared in Al-QL&, the most independent and widely read newspaper in the Occupied Territories, on three separate weeks during 1993-95. All three weeks were chosen for their strategic temporal importance: the final week of June 1993 occurred just before the secret Oslo negotiation route became known which conclusively resolved that Arafat and the PLO outside, would take over in Gaza and Jericho rather than local Palestinians. The second week at the end of April 1994 occurred on the eve of the Cairo Accords and the emergence of the PA. The third period covering the final seven days of May 1995, marks approximately the first anniversary of the Palestinian Authority and the termination of Israeli rule over most of Gaza. In none of these weeks did any dramatic event occur that could divert

attention from the usual, though hardly prosaic matters, on the Palestinian agenda. According to many professionals working within both international NGOs and their Palestinian counterparts. the emergence of the PA has had a devastating impact on the PNGOs, especially regarding funding diversions from civil society to the PA (Usher. 1995). Aid flows towards PNGOs are very hard to aggregate because of the immense heterogeneity of funding sources and the bewildering array of recipients. Many of the reportedly 1,200 private voluntary organizations operating in the Occupied Territories are subcontracted by over 30 international NGOs. This pessimistic assessment, however. is not borne out by the data. There were 74 news items on PNGOs in 1993.64 in 1994, and 63 in 1995 reflecting slight decline in the level of reporting. such that at least among the educated public, the PNGOs continue to serve the public in a consistent manner. A radically different picture emerges when civil society is conceived of not as a category of service institutions but as a public (acting in organized fashion or as individuals) that contests public norms or behavior of state officials and institutions. After the emergence of the PA and the arrival of Arafat there was a decline in both the number of articles dealing with public affairs (politics, social policy, social organizations, and social problems) and those specifically dealing with governance matters in the PLO and later the PA. There were 15 articles published on public affairs in 1993, precipitously rising to 22 in 1994 just before the signing of the Cairo Accords. and then a sharp decline to 10 articles recorded for one week, a year after the emergence of the PA. More dramatic still was the decline in the number of these articles that specifically addressed political problems in the PLO and the PA: nine in 1993, 13 in 1994, declining to four in 1995. No doubt censorship played a major role. Al-Quds had run afoul of the PA such that on two occasions at least, the PA forbade the distribution of the daily in Gaza and Jericho under PA control. While it might be claimed that this methodology reflects censorship rather than the decline in civil society and that contestation might continue to take place within research institutes and institutions of higher learning and their publications, it is a fact that the PA acted against the newspapers rather than the research institutes, indicating the formers effectiveness. Regretfully, the state not only acted to muzzle civil society, but was also effective in doing so. One should also take note that Al-Quds is an East Jerusalem newspaper, operating under Israeli law, and thus enjoys, for the time being at least, greater freedom than other Palestinian organs, particularly those that emerged in Gaza under the PA. The fact that Palestinians had more control of

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their own affairs should have encouraged greater commentary on public affairs than before. There was in fact less of it. It would be fair to conclude at this point that while Palestinian civil society has not been mortally wounded with the emergence of the PA. it is in grave danger, especially in view of the impending expansion of the PAs physical control of the most populated parts of the West Bank where most of the PNGOs and an informed public reside.

8. STATE-BUILDING AND CIVIL SOCIETY: STATE INSTITUTIONS AND PNGOS Has organized Palestinian civil society been playing the role designated in theory of contesting the state in the creation of public norms? The PNGOPA relationship has revolved around three central issues-funding, licensing, and participation in formulating policy. The funding issue is probably the most crucial. The emerging Palestinian Authority has decided that the PNGOs can receive financial support from either government donors or international donors (from the European Community, the UN agencies and INGOs) only on condition that the state agrees to it and that such aid be coordinated with the relevant state agencies. Licensing also became an important issue. On September 24, 1994, the PA called on all private voluntary organizations to register by November 2, 1994 or else be considered non-operational. PNGOs responded that while they are not opposed to registration, they were only willing to register when laws governing the relationship between PNGOs and the state are ratified. These laws should ensure that registration is merely an administrative matter and not part of a licensing process. PNGOs duly anticipated state encroachment and one month after the Declaration of Principles, 20 of them formed the Network of PNGOs and drafted a position paper underscoring their right to international funding and their immunity from any form of licensing. They feared that the outside PLO. influenced by Arab politics around them, would impose their political culture on the more democratic inside (Aruri, 1994). To gain legitimacy in contesting the state. the Network commissioned a local lawyer to make a comparative study of legislation regulating NGO work in five states, Denmark, Egypt, India, Israel and the United States, which was completed in May 1995 (Husseini. 1995). The study pointed out that only Jordan requires licensing, that Egypt requires many more procedures of registration than the other states, and that both Arab states accord officials considerable latitude to interfere in the workings of the NGOs. None of these states specifically address

the issue of international aid funding. The upshot of the paper is clear. First. there is a clear correlation between the democratic nature of the state and noninterference in the affairs of NGOs beyond, of course. assuring these organizations financial accountability to their respective members and donors. The PA must then decide whether it is going to join the ranks of the United States, Denmark. and Israel. or the ranks of more authoritarian states such as Egypt, Jordan, and to lesser degree, India. Second, the paper intimates that the PA, by setting limitations on funding of PNGOs, would place itself in the unenviable status of being in a class by itself. Given the weakness of the NGOs, the state is likely to have its way. The PNGO Network established at the end of 1993 is the only umbrella organization so far that believes that one of its principle roles is to foster public norms. Nine months after its establishment, it has succeeded in attracting to its ranks a mere 62 member organizations out of a total of 1,200 voluntary organizations presumably operating in the occupied territories. Some of the member organizations such as the Union of Palestinian Medical Relief Committees indeed rank as some of the biggest in the Occupied Territories but even so, the member organizations represent a small fraction of total voluntary activity (Al-Qds, February 16. 1994). They are, moreover, not evenly spread throughout the area. Out of these 62 member organizations. only I6 are from Gaza and one alone operates throughout the territories. Yet Gaza represents over 40% of the total population. There are no Hebron-based organizations, only one organization specifically based outside Gaza city and no organizations from the district of Jenin. The general profile of these organizations is highly urban, elitist, and oppositionary. The PNGOs operate in a political environment where opposition political parties sympathetic to their cause are weak. All polls conducted so far in the Occupied Territories since the establishment of the PA indicate the extreme weakness of non-Islamic opposition groups. The question of whether Palestinian civil society is playing its allotted role must be answered in the affirmative. The Networks contestation with the state is inextricably linked to public norms. One of the most basic of them is the rule of law. The PNGO Network is challenging the PA regarding one of its most basic failings-the almost total absence since its inception of any lawmaking, even in the form of ordinances. Israel. for example, promulgated nearly 100 such ordinances between its declaration of independence on May 14, 1948 and the convening of the first Knesset, nine months later. Needless to say, the Networks contestation with the state would have been impossible without international aid.

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9. CONCLUSION The hegemonic democratic paradigm in the world today places on the state the onus of achieving both a significant degree of democratization and economic sustainability. These expectations place the Palestinians in a more acute dilemma than what Huntington felt new states during decolonization faced. He had at least thought that states were faced with the choice of attempting to maintain parliamentary institutions and suffer from stagnation or of becoming autocratic in order to institute reforms. Thirty years later it is known that autocratic states can stagnate to a greater degree than states that survived the slide to dictatorship. Unfortunately, the third wave understanding of the developmental state scarcely addresses the dilemma because it is predicated on a developmental leadership, when in fact its absence in most Third World states is often the root of the dilemma. Combining Huntingtons insights with the developmental state model might pose a solution to the dilemma. This entails maintaining the objectives and policies implicit in the third-wave developmental model with the cultivation, wherever possible, of civil society. This must be achieved, however, after the centralization of power, which is to say, in the correct sequence. How indispensable international aid is to the establishment of political authority depends on the national movements legitimacy and the nature of the opposition.s Regarding the Palestinians, the PLO possessed considerable legitimacy but it also faced a violent fundamentalist opposition which enjoyed legitimacy at least in the period immediately preceding the peace accords. Nevertheless, by late 1994 it was obvious that the PA was more than a match for the Islamic fundamentalists. As suggested above. aid could have gone into building the civilian capacities of the state. Where the national liberation struggle is characterized by civil war, however. any hope for state-building is contingent on considerable international aid to bolster the military powers of the central government.

The lesson is that first, the legitimate monopoly over use of force must be secured, then the building of state capacity, followed by a selective development strategy. Only then may considerations of broad based and diffuse economic welfare be taken into account. The international aid regime frequently deals inadequately with sequence and mix, because it is based on liberal prescriptions that minimize the role of the state. In the Palestinian case, donors quickly modified their liberal course in the first year of aid and financed, as advocated by Huntington, the centralization of power. The transformation may be explained by the fact that liberal prescriptions, popular in many domestic political arenas and especially in the United States, facilitate commitment of international aid. Once, however, the international aid regime is set in motion, it becomes the province of the foreign policy elite who are interested in using international aid to preserve political order, particularly in so volatile a setting as the Middle East. It is important that after the political entity achieves sufficient power to maintain internal order. the international aid donors should consider the problem of mix. Donors ought to encourage civil society, help develop institutional capacity, and cultivate a bureaucratic esprit de corps rather than continue to underwrite operating costs. States should be held more accountable for aid as a means of strengthening the autonomy of the bureaucracy and the funds should be used to finance choice strategic projects rather than engage in diffuse infrastructural development. This holds the promise of facilitating the emergence of a strategic elite as well as of reducing the load on a government with weak administrative capacity. It also reduces the danger that the international aid regime may promote a pathological partnership in which the state coerces while the international institutions govern.

NOTES
In Israel, I. Sunday. the cabinet meetings take place every September 1993 by, among other ways, ressurecting democracy and free associational life... as a back to the future strategy reminiscint of the 1960s. Implicit in these objectives is the fact that economic reform and democracy mutually reinforce each other or that economic reform will lead to democracy--once again a problematic assumption. 4. For example, The Palestinian Minister of Planning and Development. Dr. Nabil Shath, signed a cooperation agreement in Paris in December 1995, in which France agreed to donate $15 million for the building of the Gaza port and several other development projects, (IBIS-NES95-238, p. I I); in January 1996, during the visit of Swedish

The term juridical state was coined by Jackson 2. and Rosberg (1982). It refers to a state that is ineffective domestically but nevertheless recognized and often mainrained artificially by the international community. The fact that states no longer have to fight for their survival in the face of external foes makes for bad leadership at home and often for disasterous government performance. Callaghy calls Clintons goal of a strategy 3. enlargement... of the worlds free market economies. of in

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Foreign Minister, Lena Hjelm-Wallen to Gaza, she signed an agreement to give $26 million to the PA (FBIS-NES-96. 028, p. 22). 5. The above analysis and figures do not present the total picture. An unknown amount of bilateral aid is neither coordinated nor reported to the World Bank. 6. As of June 1996, Israel has transferred to the PA NIS 1280 million (about $420 million) for customs and tax returns (Israel, Foreign Ministry Memorandum, June 11, 1996).

7. In the particular case of the Network, funding has come from the Canadian International Development Agency (Newsletter, 1995).

8. In Namibia, for example, SWAP0 possessed a near monopoly of legitimacy, the opposition was nonviolent, and SWAP0 was willing to transform itself to a political party and thus demonstrate its willingness to build a democracy. It thus needed little military capability.

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