The Palestinian Economy during the British Mandate

Indicators of the Economic Development in Palestine to 1948

This chapter aims at determining the general features of the economic development indicators and illustrating a set of facts and data that summarize the results of economic development in relation to the set of main indicators that led to a radical structural transformation that was necessary for the establishment of the Jewish-Zionist State, which was declared on 15^th May, 1948.

The conclusion of this chapter is a general summary on the set of indicators that pushed for the development of the Palestinian economy along with its reflections.

First: The General Features of Economic Development and its Indicators:

The following part explores the general features of economic development witnessed by Palestine during the British Mandate, particularly during three main phases as follows:

1. The Economic Development in the Period between the World War I and World War II (1914 – 1945):

The direct huge Zionist influx of people and funds has squarely influenced the indicators of economic development in Palestine in the period between World War I and World War II (1918 – 1939). Moreover, it played a role in steering the Palestinian economy away from the international economic developments during that period. Undoubtedly, the Palestinian economy has achieved a high growth rate during that period, whether measured by the indicators of external trade, the government’s revenues, or industrial production. The external trade tripled during that period, in addition to the increase of public revenues six times. However, it was noticed that the Jewish immigrants and community in Palestine enjoyed this economic growth more than Palestinians and Arabs. This economic growth had apparently improved the living conditions of Jews more than the Arab society.  As a proof, the economic indicators pertaining to the per capita income indicated that the average income for each Jew was 20 pounds in 1923 and 1924 and rose to 50 pounds in 1935, while the average per capita income for each Arab reached 17 pounds during the year 1936.

It was noticed that the economic development in Palestine in the mid 1920’s and the very beginning of 1930’s had headed in the opposite way of the international economic developments, which also witnessed deterioration. This was associated with the financial transfers and the Jewish immigrants who flooded into Palestine. Also, the Palestinian economy had been affected by a high rate of unemployment and deterioration in the commercial activity and investment. More than that, during the period (1936 – 1939) Palestine was in a state of unrest due to the new waves of Jewish immigrants. The Arab agricultural activity during the first years of 1930’s was in a state of recession for being affected by the international economic situation, particularly the decrease in the prices of agricultural commodities.

It is worth mentioning that the period (1932 – 1939), prior to the outbreak of World War II, witnessed a structural transformation in the Palestinian economy during which the largest portion of the Jewish economic infrastructure had been accomplished and pushed toward the establishment of the Jewish state institutions. It also widened the gap between the Arab and Jewish economies in favor of the latter. This happened as a result of a change in the demographic balance owing to the influx of Jewish immigrants, synchronizing with the Nazis taking over in Germany, which increased the Jewish population to around one third of Palestine’s inhabitants.

Due to the influx of Jewish immigrants and loan capital, as well as the increase of Jewish ownership of land and the establishment of industrial and financial establishments, the base of the Jewish economic building had been reinforced.

2. The Economic Development during World War II:

The circumstances that led to the flare-up of World War II had a great influence on the Palestinian economy, most obviously on the sectors of commerce and industry, as well as the international economic relations. The Second World War (1939 – 1945), had saved the Palestinian economy from recession that dominated it the period prior to World War II (the second half of 1930’s), as the Palestinian economy was backed by the British military procedures in the Middle East region in a step that aimed at decreasing the reliance on the external imports as well as making available consumer products for the regional market since its international relations with the European and American markets were severed.

In addition, the Palestinian economy was exploited to meet the British military needs, and the Jewish and Arab economies enjoyed these procedures, especially the Jewish industrial sector.

Furthermore, the circumstances of World War II had played a major role in achieving the economic growth by which the Palestinian external trade thrived to a great extent, both at the imports and exports levels. This happened due to the British procedures of merging and exploiting the Palestinian economy to serve Britain and the Allies. This pushed the Palestinian economy to satisfy the public demand as the communications with the foreign countries were cut off. The Middle East region had also played an important role and had gathered momentum for the Palestinian external trade.

As a result, the trends in the Palestinian external trade had been influenced by the circumstances of World War II and the relative significance of the Palestinian trade with the Middle East had increased.

Second: Reflections and Results of the Economic Development:

The following is a set of basic structural indicators which reflect the results of the economic development, particularly the development of land ownership, both in quantity and quality, demography, and national income.

The Development of Land Ownership:

The developments relating to land ownership in Palestine had been a result of the political, legal, and institutional divisions which were shared between the leaderships of the Zionist Movement and the governance of the colonial British Mandate. This led to a duality in the Palestinian economy and different structures for the Arab and Jewish economies in terms of production, funds, and marketing. This was also due to the absence of the national development administration which was supposed to be in charge of the development process of the Arab Palestinian people in all its phases, including production, marketing, and making available of all the necessary services, at the time the Jewish economy received all support and backing to exploit the Palestinian natural resources (systems of land ownership and transfer of this ownership, privileges, and administration centers…etc.) In addition, the Jewish entity was planted within the decision-making institutions and departments who have power over the ownership of land resources, along with the adoption of fiscal policies which consequently supported the chances of agricultural growth as well as the policy of taxes and customs.

Owing to all this, the Jewish ownership of land had increased in Palestine, both in quantity and quality. Although Arabs used to own 80% of the arable lands, Arabs could only have 50% of the irrigated lands. This clearly reflects that the Zionist settling policy, supported by the policies of the British Mandate government, targeted the water resources in these lands.

The following facts and indicators illustrate a brief summary of land ownership in Palestine:

The area of lands that was under the Jewish control had increased from 650,000 dunums in 1920 to 1,650,000 dunums in 1948, after the opening of land registry.

It is worth mentioning that the Zionists tried hard to seize rich arable lands, although could only have 5.9% of the agricultural lands.

The Jewish agricultural activities developed till they had 50% out of the area of arable lands planted with citrus trees, 12.2% planted with grains, and 8.3% planted with vegetables.

The number of Jewish illegitimate settlements increased from 73 in 1922 to 123 in 1931, and this number rose to 287 in the year 1945. In addition, 6 more settlements had been enlarged to become cities in 1942. At the end of the British Mandate, the number of illegitimate Jewish settlements had risen to 363.

Sixty-one Arab villages and towns were replaced by Zionist settlements in Palestine and many Arab tribes were expelled from their lands by force.  This replacement affected the structure of the Arab and Jewish labor force in all the sectors of the Palestinian economy. So, the labor force working in the agricultural sector decreased in favor of the third sector (the government, municipal departments, and public works).

The common British-Zionist policies relating to the ownership of arable lands had caused a major problem to the agricultural activity due to the population’s increasing need of the natural and water resources in Palestine. This deprived the Palestinians from exploiting their own natural and water resources so that their standards of living can rise. This problem had also occurred due to the absence of a national administration on development and the following of discriminatory policies added to rise of duality in the agricultural sector, in addition to the growing of certain crops to serve the Jewish interests.    

It should be remembered that the Zionist movement succeeded in ignoring the economic and logical considerations relating the concept of “capacity” in the agricultural sector due to the lack of commitment of the British Mandate. The Zionist movement had also ignored the interests of the indigenous people of Palestine, particularly the ownership of arable lands and the imposition of minimum standards of living, as had been proven by Arab researchers.

As a result, facilities were available for the Jews to immigrate to Palestine in huge numbers, the matter that caused a sharp imbalance between the Arab and Jewish societies.

Demographic Development:

The following data reflect the percentage of Jewish population during the British Mandate era from 8% in 1948 to 33% in 1948 (Before the establishment of Israel).

Demographic Development of Arab and Jewish Population in Palestine:

The Palestinian Immigration due to the Establishment of Israel:

By the time the Zionist existence was on its way to declare the creation of the Zionist state, the Zionist terrorism waves against the Arab citizens in Palestine had increased, in addition to the perpetration of genocides by Zionist armed gangs, who aimed at creating a state of trauma and fear among the Palestinian people in order to force them to leave their homes for fear of collective extermination.

Around 750,000 Arab Palestinians were forced out of their homes (55% out of the total number of Arabs in 1948) during four periods as follows:

The First Period: Prior to Deir Yassin Massacre (9/4/1948) which included 60,000 people.

The Second Period: In the Period between Deir Yassin Massacre and the establishment of the Zionist State, this included the displacement of 350,000 Palestinians from the cities of Tiberius, Haifa, Java, Bisan, Akko, and Jerusale as well as scores of Palestinian villages.

The Third Period: Immediately after the establishment of the Zionist state, this included the displacement of 160,000 Palestinians due to the fall of the two cities: Al-Lud and Al-Ramlah as well as tens of Arab villages.

The Fourth Period: It extends from the first hudna (truce) in February 1949 and the second hudna in October 1948; it included the displacement of 175,000 Palestinians from Gaza District.

It should be noted that there are discrepancies over the estimations of the number of displaced Palestinians from the Zionist, Arab, and international perspectives. According to the Zionist claims, the number of displaced Palestinians is estimated at 550,000; while the international sources, according to the UN, estimate the number of displaced Palestinians at 726,000 and according to the Arab estimations they are between 750,000 and 800,000.

Developments of National Income

The available data cannot determine the development achieved in the national income and per capita income. The attached table (1/8) show that the per capita income had witnessed a development during the years 1936 and 1945 that reached 212.5% for the Jewish individual in comparison with the current prices.

The income of the Jewish individual had surpassed the income of the Arab individual. To prove this, the income of the Jewish individual was 44 pounds in 1936 and rose to 54 pounds in 1945, while the income level for the Arab individual was 16 pounds in 1936 and 19 pounds in 1945, in comparison with 1936 prices.

The scanty data available concerning the national income show a prominent development in the Jewish sector as it was 1.6 million Palestinian pound in 1922 and rose to 88.2 million pound in 1945 (table 2/8).

Third: Indicators of Economic Development in Palestine

General Summary:

The study of the economic development in Palestine during the British Mandate presented the main features of such development, defined its indicators, and contributed to the formation of its structure, as follows:

A. the economic development in Palestine at the beginning of the British Mandate started with fragile labour, service, and production due to the weakness of the Ottoman developmental policies in addition to the impacts of World War I which used the natural and human resources of Palestine in the fierce fight between the Allies on one hand and Turkey and Germany on the other hand.

B. the Palestinian national economy since the British Mandate had been controlled according to a set of political, legal, and institutional structures which aimed at replacing the Zionist entity, with its political, economic, and ideological constituents, with the existed Arab entity in Palestine.

The analytical review of the economic development had included the determining of the way used by the previous structures in steering the Palestinian economy so as to serve the interests of the British Mandate Government on one hand and the requirements of founding the Zionist productive and institutional bases. This had been reflected in the different demographic policies, especially the ones relating to the Zionist immigration to Palestine and exploitation and investment of Palestinian natural resources. Furthermore, the Zionists were encouraged to expropriate and settle in the Palestinian land, in addition to granting privileges to Zionist or influenced-by-Zionists companies to exploit Palestine’s natural resources and to run the Palestinian institutions and public services.

The policies of the British Mandate Government which favoured the Jewish community had caused the failure of the Arabs’ attempts to develop their own capabilities and the financial, agricultural, and industrial sectors which precluded the founding of Arab industries with small capitals that can compete with the Zionist industrial sector with its huge capitals. More than that, the British Mandate Government had exempted the Jewish industry from customs, causing the Arab consumers to incur the expenses of promoting the Jewish industry. As a result, the Arab institutional existence had gradually dwindled which helped in paving the way for the supremacy of the Jewish institutions as well as the declaration of the establishment of the Zionist state in May 1948.

C. the British Mandate in Palestine, during the military mandate at the beginning and then the civil administration in the period (1920-1948) had contributed to the “Balfour Declaration”-- which supported the idea of establishing a state for Jews in Palestine – and in adopting a special mode regarding the policies and commitments of the Mandate in a way that differed from all the mandates of the Allies which took place as a result of division and distribution of the Turkish territories in San Remo Conference on 25^th April 1920 (three year prior to the ending of war with Turkey at Luzon Treaty).

San Remo Conference resulted in granting France the administration of Syria and Lebanon as well as giving Great Britain a mandate over Palestine, East Jordan and Iraq.

Although all the mandates imposed on the Arab countries had been declared on the countries which were recognized as temporarily independent during the League of Nations, the mandate documents controlled by the mandating country had been amended and adapted in a way that serves its interests. As a result of Balfour declaration that supported the idea of establishing a state for the Jews in Palestine, Palestine has been deprived of independence which other Arab countries, which were subject to mandates, enjoyed. For instance, Iraq gained official independence on 3^rd October, 1932. Lebanon also gained full independence on 22^nd November, 1943. Syria, as well, had gained full independence on 1^st January, 1944. Even Jordan, formerly called East Jordan, which was listed together with Palestine in one British Mandate Document had been treated as a separate entity and eventually gained an independent administration, as the British government demanded from the Council of the League of Nations to issue a resolution by which it ratifies the existence of an independent administration eastern Jordan till it gained full independence as “The Hashemite Kingdom of Jordan” on 22 March 1946.

The British Mandate did not grant Palestine any independence. It instead created a “continuous conflict” that pushed the Arab-Palestinian National Movement to sever all types of cooperation with the British Mandate administration.

Due to the acts of the British Mandate, as previously pointed out, the Palestinian economy had been deprived of the development opportunities. In addition, the practices of the British Mandate that collude with the Zionist movement had caused the Arab Palestinian people to lose trust in the British Mandate administration, its papers and official declarations, as well as the delegations that were dispatched to Palestine.

The Arab Palestinian people adhered to a main demand of gaining independence like all the other Arab peoples. Therefore, the Palestinian National Movement refused to participate in the legislative institutions and bodies, like the legislative council, and the administrative institutions, such as the Arab Agency that is similar to the Jewish Agency proposed by the British Mandate Authorities. This is because the Palestinian National Movement did not want to deal with any institutions that are incapable of resolving the existing conflict in Palestine, including the Jewish immigration and the systems and rules of land ownership and property transfer. Instead, the Arab Palestinians found themselves and their economic and social institutions subject to a discriminatory policy that led to the creation of dual economy (Arab and Jewish) which produced a weak Palestinian economy under the supervision of the British Mandate Authorities.

As a reaction, the British Mandate attempted to contain the Arab Palestinian people, who rejected to participate in the previous institutions and bodies, by establishing the High Islamic Council headed by Hajj Amin Al-Husseini in hopes that it can control the Palestinian people, in addition to appointing Arabs in different institutions, especially in routine, insensitive positions.

D. The history of the Palestinian economy had witnessed the “dualism” phenomenon. In the 1920’s, this phenomenon appeared and in 1930’s it recorded a conspicuous supremacy for the Zionist economy and a recession in the Arab economy. The Jewish immigration, which took place at three stages in 1930’s, had played a major role for being one of the main indicators for the Jewish economic development in Palestine during the 1930’s.

Soon as Palestine approached the end of 1930’s, it had been subject to the circumstances of World War II which widened the gap of between the Arab and Jewish economies. By the end of the War, the Jewish economy was strong enough to push ahead toward the declaration of the establishment of the Zionist state and formation of the main structural features of the Jewish industrial, agricultural, financial, and commercial sectors.

 E. The Arab Palestinian economy was the victim due to the Arabs’ weakness. The Arabs were supposed to save the Palestinian economy that was confronted by the Allies that supported the Jewish movement. The Arab weakness was caused by the political atmosphere that dominated the Arab countries, which were subject to the British and French colonial powers, as well as the loss of an independent Arab National will.

As a result, the Palestinian people had to solely confront the Zionist imperial invasion against their lands and existence through a series of revolutions since the beginning of the British Mandate. It had been clear that the Palestinian people prioritized the political struggle and armed national revolutions over the building of their economic facilities. The imbalance between the Arab powers and the Zionist imperial powers had helped the latter win the demographic conflict which begun at the beginning of the British Mandate and the declaration of the Zionist state.

It is worth mentioning that the some of the Palestinian leaderships were in dispute with each other and they were not motivated to take care if the institutions founded to save the Palestinian lands and establishing Arab cooperative movement. Thus the Arab institutions were short-lived and there was no initiative made by Arabs to construct the institutional frame for the Palestinian economy. Thus the disputing Palestinian leaderships are to blame for enabling the Zionist economy to gain supremacy.

F. The accumulative experience of the Jews immigrating to Palestine and the financial and banking relations with other institutions available in the western countries had played a fundamental role in making the Jewish institutional existence successfully survive and develop.

The financial and commercial policies of the British Mandate government had united with the abundant funding potentials of the Zionist movement and institutions to buttress the Jewish productive sector particularly the industrial and agricultural sectors. The initial activities of these powers had contributed to the flooding of Jewish capital and immigrants into Palestine. As a result, the banking system had apparently developed in the period (1920 – 1943).

These potentials had compensated the Jewish health, education, agriculture, and industry sectors which suffered from lack of funding by the British Mandate government because it paid much attention to the security and military affairs that required considerable expenditures. At that time, the Palestinian economy had been deprived of any funding for the activities of its sectors.

To sum up, the Palestinian economy had been run throughout the British Mandate under a main objective which was to replace the Arab entity with the Zionist entity in Palestine. This was due to the absence of a national authority that should be in charge of running the national development which represents the majority’s interests. Therefore, the Palestinian people had been subject to discriminatory developmental economic policies that resulted in the development of the Jewish economic and social structures which led to the declaration of the Zionist state.

Industrial Development in Palestine to 1948

The industrial development in Palestine during the British Mandate era had been associated with a set of factors that played a fundamental role in determining its trends. These factors included the “natural and human resources” of the Palestinian economy. As to the natural resources, including both the agricultural and industrial activities, they were poor in terms of sources of energy and raw materials necessary for industry, in addition to the small size of the Palestinian markets. As to the human resources, they contributed to the shaping of the Arab and Jewish industrial development depending on the type of these human resources and their level of competence. Thus the Jewish immigration played a prominent role in leading and supporting the Jewish industrial development. These factors included the Jewish accumulative industrial experience and the influx of Jewish capital which sought a secure investment in the territory which had been planned for the Jewish gathering, in addition to enlarging the consumer market of the Jewish industrial production.

Also, the factors of industrial development had been associated with a set of political, legal, and institutional frames, starting with the Ottoman policy that did not make available any chances for industrial development in Palestine, and the much deteriorated industrial situation in the wake of World War I and ending with the policies and the financial, commercial, industrial, and administrative legislations of the British Mandate authorities, which aimed at supporting and developing the Jewish industry by weakening and limiting the Arab industry.

The Zionist institutions played a major role in providing necessary support for the Jewish industry in Palestine, particularly funding. Because the Palestinian industrial development was influenced by regional and international circumstances, the analytical review of such development is divided into two periods: the period between the end of World War I and the beginning of the British Mandate, and the second period starts from the end of World War II till the establishment of the Jewish state.

The industrial development during those periods is followed by analysis of both the supporting and hindering factors in the Arab and Jewish industrial development as well as the basic differences in their development trends.

First: Summary of the Industrial Situation at the Beginning of the British Mandate Era:

Till the beginning of the British Mandate, Palestine had not witnessed any real industrial sector that meets modern standards. The Palestinian community was leading a rural life which had small industries and family crafts that met the needs of the rural families.

The industries which were available in Palestine in the beginning of the 20^th century were transformational industries that depended on the agricultural production such as grain grinding, vegetable oil extraction, and some chemical industries such as soap industry, in addition to some industries that meet the basic needs of a rural society such as: textiles, hides tanning, and iron and wood industries.

Palestine was not distinguished for its industries in comparison with other neighboring countries for most of the industrial production used to be locally consumed, except soap industry that was exported to the neighboring countries especially Egypt and Iraq.

It is beneficial to recognize a set of industries that were available in Palestine during the previously mentioned period. These industries include:

1. Flourmills Industry:

Most of the mills in Palestine were manual or operating by water pumping. However, since 1912 there had been some grinding machines for flour industry in Jaffa City, in addition to some machines for macaroni industry.

2. Vegetable Oil Extraction:

Most of the presses were made of wood which were operating by animals. Some of them were water pumping presses. There had been factories for olives and sesame oil extraction. The average production of a small factory reached 150 to 200 kilos of oil, while the production of large factories ranged from 2000 to 3000 kilos of oil. The rate of annual oil production was estimated at 7000 tons of oil.

3. Soap Industry:

Nablus was the most famous Palestinian city for soap industry, it had 30 soap factories. Haifa and Jaffa are also famous for soap industries and they are rated after Nablus. The production of Nablus factories prior to World War I ranged from 500 to 1000 tons, and Haifa’s factories production of soap was 300 tons, while the production of Jaffa’s factories ranged from 200 to 300 tons. The rate of soap exports in 1913 reached 200.000 pounds. Some modern means of soap production were added to these factories at the beginning of the 20^th century by a Jewish-Russian company that used to produce 200 tons a year.

4. Alcohol Industry:

Jews brought the alcoholic drinks industry to Palestine and most of its products were exported. At the beginning, this type of industry, which was concentrated in Hebron City, depended on primitive production means.

The following table shows the oldest industrial statistics available:

Reference: Younis Al-Husseini, Economic & Social Development in Palestine, page 125.

Concerning the geographical locations of these industries, they concentrated in Jerusalem (167 factories), while Jaffa had 119 factories, and Haifa had 82 factories. The chemical industries had the largest percentage of factories in Palestine: 32.0%, followed by the food factories (14.4%), textiles (13.6%), metals (8.2), and wood industry that constituted (7.3%).

To conclude, the industrial base for the Palestinian economy was undeveloped at the beginning of the British Mandate. It was extremely undeveloped due to the Ottoman's mismanagement, absence of transportation means, unavailability of industrial funding, small number of engineers, and lack of qualified labor force because of the absence of technical industrial education, in addition to the undeveloped agricultural sector and the small capital available for industry.

Second: The General Industrial Development in the Period (1914 – 1945):

1. The Industrial Development during the 1920's:

The 1920's had witnessed the appearance of industrial aspect in the Palestinian economy, especially in the field of power generation and Haifa's refinery.

Many projects started with the appearance of industrial labor and many machines and row materials were imported for industry and thus getting out of the cycle of agricultural sector. The Arab industry at the beginning depended on the labor force working in the agricultural sector, while at that time the Jewish industrial community used professionally trained laborers. The Jewish immigration to Palestine had played a fundamental role in the development of the Jewish industry and in 1928 new industries had been brought to Palestine such as printing, dentures (false teeth), leather and earthen products, as well as textiles.

The number of workers in crafts and factories had been estimated in 1921 at about 10,000 workers. Five thousands new workers had been registered in 1925, and 6,000 new workers had joined the workers' sector in 1926, and 7,500

In 1928, a survey on industry in Palestine was conducted including stores and workshop which produces all types of commodities both manual and mechanical; however, this survey did not encompass home industries and public utilities such as bricklaying and transportation, in addition to selecting only some samples. The number of installations counted in the survey included 3,505 factories – of which 2269 factories were established after World War I. According to some sources, the Arabs’ portion reached at that time 65%, despite the fact that this survey did not distinguish between the Arab and Jewish industries.

The following table illustrates the most important industries and the number of installations included in the survey of 1928: