Three weeks ago—just while Benjamin Netanyahu was preparing for his Palestineless AIPAC speech—I accompanied a team of about thirty Chinese businesspeople on a visit to the West Bank, led by a former Duke colleague, Liu Kang, now also the dean of the Institute of Arts and Humanities Shanghai’s Jiao Tong University.

It was kind of tour d’horizon for uninitiated but intrigued foreign investors—“some billionaires,” Kang assured me—shoe and leather manufacturers, toy exporters, equity-fund managers, people by now accustomed to seeing the world as their market, if not their oyster.
They trouped obediently to one bus-ride after another, shuttling from Ramallah’s Movenpick (“our velvet prison,” as one Palestinian entrepreneur calls the hotel) to the territory’s leading businesses, hearing welcomes and lectures from executives of, among others, Paltel, the nearly billion dollar telecom company, Padico, the large holding company, the Palestine Investment Fund, the sovereign wealth fund, Pharmacare, the generic drug manufacturer, and leading banks, exposing themselves to various (in some cases, superb) executives I have known for some time and written about before. The PowerPoints were sharp, the numbers, not-too-shabby, but weakening, the message: invest, partner, help.

You squint, and you can almost see what the Palestinians’ state would look like—that is, if Palestine’s managers and entrepreneurs could pursue more or less freely the larger national goals implied by their organized commercial efforts—not always free of petty corruptions and influence peddling, to be sure—but the spine of Palestine’s civil society, rooted in the rule of law and government regulations, disciplined by genuine competition and international partnerships and standards of practice.

The problem comes when you stop squinting and let in the ambient facts—the incipient regional violence, and worse, the reality of occupation. The World Bank just released it latest report on the Palestinian economy, called “Stagnation or Revival.” The trend is discouraging. The PA is in an unprecedented crisis, in need of $1.5 billion in donor support for its public sector and raising only about $800. Private sector growth slowing and cannot make up the difference. Fayyad tried to close the deficit by raising taxes—which all sides around him rejected. The PA is less and less able to pay what it owes the private companies it’s contracted work from and yet also pay its police and teachers.

Netanyahu speaks of “economic peace” laying the ground for eventual compromise, but the PA’s fiscal crisis can be laid at his door.

Fayyad may eventually squeeze more out of Norway, etc., but the only sustainable way out of the crisis is a rapid expansion of Palestine’s private sector, which desperately needs what Israel got in the 80s and China in the 90s, direct foreign investment from global companies—not just money, but know-how and know-about—and, even more important, the free movement to Palestine of talent from the US and elsewhere, the back-and-forth movement of ex-pat managers from partnering companies, the movement of supplier components and finished goods, if only through Jordan.

There are over $12 billion in Palestinian bank deposits in Jordan, and another $8 billion in the territories themselves, never mind the tens of billions is in sovereign wealth funds in the Gulf. But Palestine needs greater bandwidth so that Paltel can finally set up the 3G data network he’s been lobbying for. It needs an unobstructed transportation corridor to move goods and people internally.

But Netanyahu’s government has, if anything, made these conditions for growth more remote than ever, severely controlling access to the PA’s territories. And, meanwhile, the IDF enters its towns with impunity, looking for and jailing “militants,” making Fayyad and the PA seem like Quislings. As one Chinese investor put it, “financial capital exists, but intellectual capital is choked.”

Netanyahu says that he wishes, sincerely, to work toward a Palestinian state, just not one that will endanger Israel’s “security.” But behind the PA is a kind of bourgeois revolution Israel should encourage—and does not. The business class lives mostly in the political background, and their wealth can be as much resented as admired, depending on how fairly it is assumed to have been accumulated, and how productively it is put to the nation’s use. Yet they project demonstrably plausible development path for Palestine, one that mirrors what Palestinians are already creating in Jordan—another miracle in the desert, a steadily growing Arab economy not based on oil.

Fayyad’s state-building on the private sector is, in other words, a net gain for Israeli security as much as for Palestinian hope. The two countries, together, will be city-states about the size of greater Los Angeles. Palestinian businesses are part of a single commercial ecosystem, and promise to give employment to young people (Palestine’s median age is nineteen) who would otherwise be unemployed and only nursing furious national grievances. Palestinian businesses have the potential to partner with Israelis on everything from tourism to regional telecom.

Israelis may bridle at the vision of a Palestinian state which looks like militias riding in on Jeeps and firing-off rifles. But what about businessmen riding out in sedans and firing-up laptops? Why, if Israel were serious about an eventual two-state deal, would Netanyahu (and AIPAC, for that matter) not do everything—conspicuously, symbolically—to help these businesses succeed? The facts on the ground not created by Palestinian businesses may be the biggest obstacle to peace.

“The world will eventually turn against you,” one Chinese equity fund manager told me. “The Arab world can wait you out, the anger over Palestinian poverty and suffering will isolate you.” One would think such cautions would be obvious to Israelis, of all people, whose globalized economy depends so completely on international goodwill, knowledge networks and open access. One would think Israelis would understand the opportunity cost, and moral hazard, of denying these things to Palestinians.