Tuesday, October 22, 2013

Israel and The World Bank, Part II: How the World Bank uses Counterfactual Fantasy to attack Israel

By Tuvia Brodie

The World Bank’s Report, “West Bank Gaza Area C and the future of the Palestinian economy,” number AUS2922, October 2, 2013) accuses Israel of harming the Palestinian (PA) economy. It provoked world headlines to shout, ‘World Bank slams Israel.’
This Report makes a clear case: Israeli restrictions on travel, access and water in a place called Area C of the West Bank—Judea-Samaria—strangles PA efforts to survive. Those restrictions must be lifted.
There is no realistic basis for these assertions. The World Bank even acknowledges this—in the Report’s ‘Annex I: Methodological Notes’.
 This Annex reveals that the study—and its conclusions--are based on assumptions, not facts. For example, the study assumes that land in Area C could be cultivated (‘cultivable’). It assumes that more than half of the cultivable land in Area C is irrigable. It assumes that all irrigable land will generate income. It assumes that the total annual market value of agriculture produced from this land will be USD 1.209 billion dollars.
It assumes that whatever income Israeli and Jordanian businesses generate after decades of trial and error in Area C, PA Arabs would also generate. It assumes PA businessmen and farmers are competent enough to keep their enterprises alive. It assumes that a rare pricing calculation from Egypt can be applied to Area C.  It assumes that PA Arabs doing telecommunication maintenance-and-repair (for new cellular networks) in Area C would do that work cheaper and faster than Israeli companies. It assumes that potential tourist demand (for a new tourism industry) in a PA Area C corresponds to current tourist activity on the Israeli side.
It therefore assumes that, without those so-called Israeli restrictions, all new businesses in Area C would generate for the PA a total of USD 3.4 billion dollars a year. But the study also assumes that PA corruption and theft are irrelevant. That’s a factual mistake because a 2013 European study suggests that billions of recent donor aid to the PA has disappeared—and another 2013 report by the British shows 66 per cent of PA residents calling corruption in the PA a key concern.
Financial loss due to PA corruption is important here because, despite the Report’s unconditional optimism, the Annex’ reveals that some of the Report’s estimates could be reduced by almost half if assumptions aren’t borne out. Corruption could enhance this shortfall. Curiously, these very real—and troubling—facts (corruption and shortfall) failed to appear in the Press Release that accompanied the Report.
Newspapers repeated the World Bank’s anti-Israel assertions as unconditional fact. But again, the World Bank wasn’t using fact. It was using ‘imagination’.
Let’s be clear: facts—many of which were about Israeli (not Arab) businesses--were used to create assumptions. Then, those assumptions were used to ‘imagine’ a new future for the PA.
In order to do this study, the World Bank states that it had too few facts to build with. So it created a ‘counterfactual world’ (p 36).
Do you understand the term, ‘counterfactual world’? The literal meaning of the term is, ‘going against fact’. It means creating a world that avoids fact. It is a world of pure speculation.
It is, in other words, a world of fantasy. ‘Counterfactual’ means, put facts aside. Just use your imagination to think, ‘what if…’
In this Report, the counterfactual world imagined for the PA is ideal. Everything succeeds. Everyone is competent. Everyone is honest. Everything works as imagined.
But in its Press Release, the World Bank did not reveal that this report is only an ‘imagining’ exercise. It presented the report and its conclusion as ‘fact’: without Israeli restrictions, Area C would—without qualification or condition--generate annually USD 3.4 billion for the PA.
Everyone who read this statement came to the same conclusion. Israeli oppression harms the PA.
The World Bank did not disclose that counterfactual analysis has a soft underbelly  (which applies to the Arab-Israel conflict): the more complex, unpredictable or conflicted a situation, the more unreliable the results could be.
Moreover, the Annex (the ‘small print’ in the back) reveals that the World Bank’s harsh judgment of Israel comes with a 27-47 per cent margin of error  for the two industries (agriculture and mining) that represent half of that projected USD3.4 billion. That means that the Report’s annual income estimate for these center-piece sectors could be 27-47 per cent lower than stated.
A businessman knows that a persistent fifteen per cent shortfall can put him out of business. A 27-47 per cent annual shortfall isn’t just a statistical anomaly to be referenced in passing and then ignored. A potential annual shortfall that large is the kind of fact that could convince astute Arabs and investors to ignore Area C altogether. It is a margin of error so great that it suggests the World Bank’s fantasy here is as realistic as a plan to build castles in the air or of a peaceful nuclear Iran.
In the fantasy world of counterfactual imagining, anything is possible--because facts aren’t necessary. For this Report, the World Bank fantasizes that the PA is competent and Israel is oppressive. Detective Joe Friday ("Just the facts, Ma'am. Just the facts") would definitely not feel at home.

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