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The internationalisation of Gulf capital and Palestinian class formation

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The internationalisation of Gulf capital and Palestinian class formation

Adam HaniehSchool of Oriental and African Studies, University of London, UK

AbstractThe internationalisation of Gulf capital throughout the economies of the Middle East has been a striking feature of regional capitalist development over the last two decades. This article traces the nature of Palestinian class formation in light of this trend (drawing empirically on 2006-2007 data), arguing that a full understanding of capitalism in the West Bank and Gaza Strip needs to integrate the internationalisation of Gulf capital with the exigencies of Israel’s occupation. The theoretical and political implications of this are discussed in light of the projection of both US and Israeli power in the Middle East.

Keywordsinternationalisation, Palestine, capitalism, Gulf capital

I. IntroductionCritical theoretical approaches towards understanding the economy of the West Bank and Gaza Strip typically focus on the ways in which Palestinian economic development is shaped by the exigencies of Israel’s occupation. The myriad military orders that control the social, economic and political life of Palestinians have regulated industrial and agri-cultural production in these areas, guaranteed Israeli dominance of Palestinian commod-ity markets, and ensured the supply of cheap Palestinian workers as a reserve army of labour for the Israeli economy. Following the signing of the Oslo Accords in 1993, the Palestinian economy was tightly circumscribed by the system of movement restrictions that gave Israel total control of the flows of commodities and labour power in and out of Palestinian areas. Industrial zones were established at the edges of these areas – most noticeably at the entrance to the Gaza Strip – where Palestinian labour could operate as

Corresponding author:Adam Hanieh, University of London, UKEmail: [email protected]



82 Capital & Class 35(1)

an adjunct to the Israeli economy while remaining geographically separate (Abed, 1988; Roy, 1995; Samara, 2001; Farsakh, 2005).

Notwithstanding the important insights contributed by several decades of political economic analyses, a focus solely on the characteristics of the relationship between the Israeli and Palestinian economies can obfuscate other important theoretical questions. Specifically, by narrowing the analytical lens to the focus of the West Bank and Gaza Strip, it is possible to lose sight of broader regional processes that no less shape the reality of state and class formation in these areas. The central purpose of this article is to suggest one way in which theoretical analysis could be enriched by refocusing attention on the broader regional political economy, particularly the impact of the Gulf region.1

The argument made below emphasises a tendency of capitalist development that is central to understanding the nature of the contemporary world economy: the interna-tionalisation of capital. Simply put, the internationalisation of capital means that compa-nies are increasingly forced to operate at a global level. Capitalists outgrow their national markets and are pressured to expand internationally in order to compete with rivals. Failure to do so inevitably means being swallowed up by a competitor that did manage to take the global leap. The strategic decisions of capital are made through an assessment of profit opportunities (and threats) at the international scale. Concretely, this means that capital organises itself at the global level: emphasising export-oriented activities, locating production facilities overseas to take advantage of cheap labour or other com-petitive advantages, and seeking mergers and acquisitions with foreign firms. Large financial flows and foreign investments in international markets become a defining fea-ture of the world market.

Ideologically, the internationalisation of capital is buttressed by the economic doc-trine of neoliberalism – a set of policies that promotes the free flow of capital across borders and the de-regulation of all economic activities. Drawing its roots from a range of sources including classical liberal philosophy and Austrian economics, neoliberal-ism’s growing influence became apparent through the 1980s. Its policy prescriptions were firmly embedded across the globe: privatisation, cutbacks to social spending, the reduction of barriers to capital flows, and the imposition of market imperatives through-out all spheres of human activity. Neoliberalism is not simply an ideological choice of the capitalist class (or a fraction thereof ), but a set of policies that emerged out of the systemic needs of capitalist social reality. The turn to neoliberalism reflected the needs of capital as it became internationalised – seeking unrestricted, increasingly rapid, and free flows across the globe. The logic of neoliberalism thus penetrated all nation states, and was specifically concerned with the ways in which these spaces were integrated into global accumulation patterns. By speeding up the rate through which capital moves across and within national spaces, and widening the spheres of human activities subject to the imperative of profit, neoliberalism aimed to ensure the conditions for capitalist reproduction at a global scale. In short, it became the ideological mantra of internation-alisation.2

This article is framed by the considerable acceleration of internationalisation pro-cesses in the Middle East during the 1990s. The internationalisation of capital was facil-itated through the adoption of neoliberal measures by virtually all governments in the region, encouraged by the advanced capitalist countries as well as by institutions such as the World Bank and International Monetary Fund. Not only did this mean the entry of



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international capital to Middle East markets, it also meant a dramatic extension in the regional influence of large domestic capital. A noticeable characteristic of this interna-tionalisation was the increasing domination of regional markets by conglomerates based in the Gulf region.

This process has had a profound affect on the nature of the Palestinian capitalist class and the subsequent patterns of economic development in the West Bank and Gaza Strip. Following the successive colonisation of Palestinian land in 1947-48 and again in 1967, the consecutive waves of Palestinian displacement throughout the Arab world meant that Palestinian diasporic capital generally evolved as an interlocked component of other regional Arab capitalist classes. There was no Palestinian socioeconomic formation in which Palestinian capitalism could develop through the various mechanisms of capital accumulation that were evident in other Arab countries. Instead, Palestinian capital accumulation occurred as part of the accumulation processes of other regional capitalist classes. Of particular importance to this accumulation was the Gulf area, which became the central zone of activity for displaced Palestinian capital.3 Palestinian diasporic capital largely developed as a distinct sub-sector of the Gulf capitalist class.

The internationalisation dynamic of the 1990s greatly impacted the evolution of this class. The geographical extension of Gulf capital dovetailed with the ‘return’ of diaspora Palestinians to the occupied territories during the Oslo process. Consequently, the dia-sporic capitalist class that had arisen in the Gulf region came to dominate the Palestinian economy of the West Bank and Gaza Strip. Despite the weight of this class in the local Palestinian economy, however, the core of its accumulation is not the West Bank and Gaza Strip, but remains firmly located in the Gulf region.

This paper maps the new form of class structure evident in the Palestinian territories as a result of this internationalisation dynamic. It argues that there are three intercon-nected tiers that constitute this structure. The top tier consists of internationalised capi-tal originating in the Gulf region. Much – but not all – of this capital is owned by individuals of Palestinian national origins. This capital links together within a second tier of powerful holding companies that operate solely within the West Bank and Gaza Strip. Finally, in the bottom tier, we find the domestic Palestinian companies that are owned and controlled by a network of both the internationalised groups and their holding com-panies. Most of the empirical work below concentrates on the West Bank, rather than the Gaza Strip, since the massive destruction of the Gaza economy that took place in January 2009 – coupled with the area’s ongoing economic isolation – make a comprehensive analysis difficult at this stage. Nevertheless, many of the same large conglomerates identi-fied in this paper have historically been active in the Gaza Strip. Furthermore, as is dis-cussed below, the implications of this analysis can help to better interpret the ongoing political antagonisms between the West Bank and Gaza Strip that are so starkly reflected in the conflicts between Hamas and Fatah.

A detailed examination of capital ownership for the major sectors of the Palestinian economy strikingly confirms its hierarchical structure and the heavy dominance of con-glomerates whose primary accumulation activities are in the Gulf. This suggests that Palestinian capitalism must be understood not only in its own distinct national terms, but also as part of the broader evolution of the Arab/Gulf political economic space. Some of the important political implications of this domination of the Palestinian economy by large, internationalised conglomerates originating in the Gulf region are suggested below.




II. Understanding the internationalisation of capital: A terminological note

The basic framework for understanding the underlying causes of internationalisation was established by Karl Marx in two main works, the Grundrisse and Capital. Throughout his economic writings, Marx expresses a deep preoccupation with the tendency of capi-talism to expand its spatial field of operation and bring larger and larger swathes of human social activity into an internationally coordinated market. In the Grundrisse, Marx makes the following prescient remarks:

While capital must on one side strive to tear down every spatial barrier to intercourse, i.e. to exchange, and conquer the whole earth for its market, it strives on the other side to annihilate this space with time, i.e. to reduce to a minimum the time spent in motion from one place to another. The more developed the capital, therefore, the more extensive the market over which it circulates, which forms the spatial orbit of its circulation, the more does it strive simultane-ously for an even greater extension of the market and for greater annihilation of space by time. (Marx, 1973: 539)

The reality of this internationalisation of capital can be seen in the development of today’s integrated world economy. The production of everyday goods involves the geographically dispersed activity of countless individuals and firms, knitted together across nation-state borders. Commodities move rapidly across the globe to their final destinations of con-sumption. Financial flows mean that investment and accumulation takes place across borders, with ownership of capital no longer directly reducible to a simple concept of national bourgeoisie. Alongside these tendencies, cross-border political institutions and international agreements have arisen to mediate, shape and control these flows.

Internationalisation, however, means much more than the increasing traversal of cap-ital across nation-state borders. During the 1970s, the French economist Christian Palloix provided an innovative and influential account of internationalisation that dif-ferentiates the concept from typically obtuse analyses of ‘globalisation’. Following Marx, Palloix described the way human beings relate to each other in the process of production and consumption as a circuit moving through three basic steps: the production of com-modities (productive circuit), the sale of these commodities (commodity circuit), and the accumulation of capital as money (money circuit). For Palloix, the history of the internationalisation of capital is primarily the successive internationalisation of these three steps. The first to internationalise was the commodity circuit, with the expansion of world trade. Second was the internationalisation of the money circuit in the form of portfolio investments in overseas ventures. The third was the internationalisation of the productive circuit in the post–Second World War period, as capitalists increasingly located production outside their countries of origin.4 In other words, these three steps were increasingly conceived of – and determined at – an international level. The produc-tion of commodities and the flows of money arising from their sale take place in circuits that are structured by the global context. As Palloix puts it, ‘the central element in this process of transformation, the commodity, is no longer produced in one nation. It is no longer limited in this way. The commodity, or rather the commodity-group, can only be



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conceptualised, produced, and realised at the level of the world market. This tendency is becoming more and more pronounced’ (Palloix, 1977: 20).

Palloix’s approach to internationalisation should be distinguished from more recent theories of the ‘transnational capitalist class’ (Cox, 1987; Sklair, 1995, 2001; Robinson 2004, 2007). Transnational theorists argue that a qualitative change in capitalism emerged with the new era of globalisation through which the nation state was superseded by the ‘global’. As William Robinson, one of the leading proponents of this approach argues, the nation state is ‘no longer the organizing principle of capitalism and the institutional “con-tainer” of class development and social life’ (2004: 40). The rise of a transnational capital-ist class marks a process of accumulation that depends upon ‘globalised circuits of production, marketing, and finances unbound from particular national territories and identities’ (Robinson, 2007: 78). This new class requires a new, de-territorialised state apparatus – a transnational state apparatus (TNS) – in order to coordinate global capital-ism and impose its domination at a global level. The TNS is the primary vehicle for ensuring the accumulation needs of ‘globalisation’ rather than the nation state.

Robinson’s understanding of transnationalisation complements and builds upon the work of Leslie Sklair, who – as Robinson himself notes (2004: 36) – has gone further than most in arguing that the power of the nation state has declined and that transna-tionalisation should be understood as a set of ‘processes, forces and institutions that cross borders but do not derive their power and authority from the state’ (Sklair, 2001: 2). Sklair’s definition of the transnational capitalist class departs from the Marxist focus on the production of value within the capital–labour relationship, to encompass bureau-crats, professionals, politicians and ‘consumerist elites’ (2001: 4). This class drives the process of globalisation with the goal of establishing a ‘borderless global economy, the complete denationalization of corporate procedures and activities, and the eradication of economic nationalism’ (Sklair, 2001: 3). Much of the transnational literature accepts this standpoint, and focuses upon mapping the activities of various institutions (such as the European Round Table of Industrialists, the Trilateral Commission, the World Economic Forum, and so forth) through which the transnational class acts and articulates its ideo-logical hegemony (see Cafruny and Ryner, 2003; and Bieler and Morton, 2001 for European examples).

The work of Robinson, Sklair and other transnational theorists is empirically rich and often contains powerful analysis of the activities of international corporations and the institutions that support them. The weakness of the transnational approach, however, is its argument that the role of the nation state has declined and that it no longer forms the key institutional mediator of capitalist accumulation, having been replaced by an amor-phous ‘transnational’ state. While capital tends to expand and move at an ever-increasing pace across nation-state borders, and certainly conceives its field of activity at the inter-national scale (as Palloix emphasised), the accumulation and production of value must necessarily take place in territorially bounded and place-specific locations. This requires institutions that manage economic policy and ensure the continued maintenance of con-ditions favourable to capitalist accumulation. The work of two Canadian Marxists, Leo Panitch and Sam Gindin, has emphasised precisely this point – that internationalised capital now depends on all states to ensure that the conditions of accumulation are met. The individual nation state thus has a responsibility ‘for managing its domestic capitalist




order in a way that contributes to the managing of the international capitalist order’ (Panitch and Gindin, 2004: 17).

The institutions of the nation state remain the enabler of internationalisation and – in contrast to the arguments of the transnational perspective – have not been weakened by this process. What has changed due to the internationalisation dynamic is not the rele-vance of the nation state, but the nature of the tasks that it carries out. As Gregory Albo has sharply observed, the tendency towards the internationalisation of capital actually acts to strengthen the processes of state formation and should not be counterposed to it in the way that much of the transnational literature tends to do (Albo, 2004: 94). For these reasons, this paper employs the notion of ‘internationalisation’ articulated in the vein of Palloix, with its emphasis on the continuing salience of the nation state and its role in reinforcing rather than undermining state formation.

III. Palestinian capital and the political economy of the Middle East

The impact of internationalisation tendencies on the Middle East region is discussed further below, but first it is important to understand the specific historical evolution of Palestinian capital within the region. Contrary to Zionist mythology, pre-1948 Palestine was not an undeveloped rural backwater. In urban areas, and particularly in the coastal cities of Yaffa, Haifa and Akka, as well as the inland centres of Jerusalem, Nablus and Hebron, an urbanised Palestinian commercial bourgeoisie involved in trading and mer-chant activities was well developed. As a consequence of the integration of the region into the emerging world capitalist economy, many of these urbanised Palestinians tended to invest a sizeable share of their wealth in interest-bearing bank accounts located in Britain as well as in the Arab world (Smith, 1984: 117). Using the records of the Anglo-American Committee of Inquiry in 1945 and 1946, Pamela Smith estimates that one-third of total Palestinian capital assets on the eve of 1948 consisted of sterling deposits held abroad, government bonds, commercial stocks, insured commodities and motor vehicles. In addition, large cash deposits were held by Palestinians in local Arab banks, the Ottoman Bank in Jerusalem, and the British-based Barclay’s Bank.

The presence of these moveable assets meant that a proportion of wealth was retained by the emerging Palestinian bourgeoisie following the forced dispossession of three-quarters of the Palestinian population that occurred in 1947-48. This must be under-stood, of course, in the context of the rapid impoverishment of the vast majority of the Palestinian population, who became refugees scattered across camps in Egypt, Jordan, Lebanon, Syria and the rest of the Arab world. Indeed, the transformation of the Palestinian population from a largely peasant society into refugees meant that many Palestinians ended up as low-waged and highly exploited labour, which later formed the basis of the economic expansion in the Gulf and elsewhere throughout the Middle East.

As the colonisation of Palestine proceeded in the post-Second World War period, the world economy was undergoing a major shift in patterns of energy usage. The massive industrial expansion that took place after the war was underpinned by oil as the major input for the production of a variety of new commodities, industrial techniques, and the exponential growth of the automobile industry. World oil production more than



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quadrupled between 1935 and 1955. While some of this demand initially came from increased production in the USA and Europe, it was the expansion of oil production in the Gulf that really laid the basis for the post-war industrial expansion. Indeed, by 1969, the Middle East had surpassed North America and Europe as the world’s major oil provider – a position it cemented during the 1970s.

This process set in train the rapid industrialisation and urbanisation of the Gulf coun-tries, centred on an oil industry initially dominated by US and European companies. It was around this influx of foreign capital that an indigenous Gulf capitalist class also began to emerge. The origins of this class display a systematic and consistent pattern. Virtually all of today’s Gulf capitalist class originated as family-owned concerns that owe their initial capital accumulation to their positions as contractors and service providers for the large US/European energy companies active in the Gulf oil industry during the 1950s and 1960s. As the Gulf economies further urbanised and industrialised, the con-glomerates that constituted the Gulf capitalist class benefited from their close ties to the Gulf monarchies, and were granted state contracts for the construction and maintenance of roads, schools, housing and utilities, as well as industrial projects in the oil and gas sector. In this way, the enormous wealth that originated in the oil sector (particularly in the wake of the post-1973 oil price rise) was channelled through state structures to form part of the accumulation base for the emerging Gulf capitalist class.5

The process of capitalist class formation that took place in the Gulf had a profound impact on the displaced Palestinian population. On one hand, hundreds of thousands of Palestinians (in addition to many other poor workers from across the Middle East) joined the pool of migrant labour that underpinned industrial expansion in the Gulf. The 1967 Israeli occupation of the West Bank and Gaza Strip further increased these flows: accord-ing to Zahlan and Zahlan’s (1977: 107) estimate, nearly 40 per cent of the available Palestinian labour force in the West Bank and Gaza Strip was employed in neighbouring Arab countries by the mid-1970s.

Concurrently with these refugee and other Palestinian labour flows to the Gulf, a tiny layer of the Palestinian exile bourgeoisie was well placed to take advantage of the rapid capital accumulation around the oil industry. With their access to some initial capital brought from Palestine, English language skills, and familiarity with British business practices through their experience in Mandate-era Palestine, this layer of the Palestinian diaspora was integrated into the emerging Gulf capitalist classes from the outset (Smith, 1984: 130). As a class within a diaspora population, it was not tied to any particular nation state. It was also able to utilise its connections within Palestinian refugee com-munities to mobilise workers for the Gulf region – particularly Kuwait, Saudi Arabia and the United Arab Emirates. By 1975, for example, Palestinians were the largest non-native foreign population living in Kuwait, constituting around 40 per cent of all non-Kuwaitis (Hill, 1983: 310). As well as labour power for construction and other industrial projects, Palestinians found employment as teachers, engineers and mid-ranking civil servants throughout the Gulf states. This process was reinforced by the relatively high educational levels attained by Palestinian refugees (compared to other Arab states) and the role of the United Nations Refugee Works Association (UNRWA) in encouraging the export of Palestinian labour to regions such as the Gulf.

By the late-1970s, Palestinian capital had been integrated as a junior component of a much larger Gulf capitalist class – most significantly in Saudi Arabia, Kuwait, the UAE




and Qatar. It should be emphasised that the development of the Gulf capitalist class was sharply hierarchical in form. A series of governmental decrees by Gulf states during the 1970s acted to channel surpluses to local bourgeoisies at the expense of foreign investors. These included measures such as the requirement of majority ownership by local capital, limits on foreign investment and privileged access to state contracts for domestic groups. It was almost impossible for Palestinians – as with all foreigners in the Gulf – to gain citizenship in the Gulf and they were thus open to deportation at any time, and denied access to the various mechanisms of support offered by the state.6 As a result, the Palestinian component of the Gulf capitalist class needs to be seen as junior element within this hierarchical structure.

Nevertheless, the situation of Palestinian capitalists in the Gulf was markedly better than in other key countries such as Lebanon and Jordan, where they became increasingly marginalised due to a complex series of factors such as Israel’s ongoing invasion and occupation of Arab lands, the growing radicalism of the Palestinian masses, intra-Palestinian disputes, and the desire of these countries to support their domestic capitalist classes.7 Despite its junior position, the Palestinian capitalist class in the Gulf benefited from its links to ruling families and wealthy elites and, in return, mediated the Gulf ’s political relationship with the emerging Palestinian national movement embodied in the Palestine Liberation Organisation (PLO) and its component factions. It is beyond the scope of this paper to adequately explore this latter relationship, but numerous writers have argued that the huge flows of money to the PLO that came from the Gulf region were accompanied by a blunting of the PLO’s political radicalism, a growing ‘neopatri-monial bureaucratization’ of the organisation as control over finances became concen-trated in the hands of Yasser Arafat, and a creeping accommodation with US perspectives on a two-state solution and acceptance of Israel.8

By the early 1990s, following the accrual of several decades’ worth of oil wealth, the Gulf capitalist class had amassed a sizeable fortune. Concurrently at the regional level, most Middle East states adopted neoliberal policies aimed at opening themselves to for-eign capital, ending restrictions on the cross-border flows of capital, privatising state-run enterprises, and expanding regional stock markets.9 These policies were most enthusiasti-cally adopted by the Gulf countries, which, by 1997, were being held up by the International Monetary Fund as a model for neoliberal reforms.10 Under the condition-ality agreements of IMF structural adjustment programmes and World Bank loans, far-reaching privatisation programmes and cutbacks to state services were implemented as regional stock markets underwent rapid capitalisation. In Egypt, Jordan and the Gulf, free trade and special industrial zones were established that promoted minimum worker rights, low wages and taxes, and full profit repatriation in order to entice foreign inves-tors to set up shop.

Neoliberalism, internationalisation and normalisation: From MENA to MEFTAThis neoliberal reconfiguration of the Middle East was predicated on the political realignment of states and regional relationships. The dominant feature of this process



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was the US-led attempt to normalise relations between Israel and the Arab world. Normalisation was central to the political economy of Middle East neoliberalism because the deepening of internationalisation processes required the free flow of capital, com-modities and labour across borders, and thus a political framework in which Israel was integrated into the regional economy.

The first step in this process was the 1993 Oslo Accords between Israel and the Palestine Liberation Organisation (PLO), immortalised in the famous picture of Yitzhak Rabin and Yasser Arafat on the White House lawn in the warm embrace of Bill Clinton. With the establishment of the Palestinian Authority (PA), Oslo gave limited self-rule to the Palestinian population in the West Bank and Gaza Strip, which, throughout the 1990s, evolved into a situation akin to the bantustans of Apartheid-era South Africa: Israel retained full control of Palestinian movement, the entry and exit of goods and economic development in isolated patchworks of territory, while a small layer of Palestinians mediated the occupation on behalf of the occupying power. At the same time, because this process occurred under the rubric of ‘peaceful negotiations’ and the blessing of the advanced capitalist states, Oslo and subsequent agreements were used to deepen Israel’s normalisation into the broader Middle East.

At a regional level, the Oslo process was reinforced by the Middle East and North Africa (MENA) Economic Summits, a series of inter-governmental meetings held annu-ally between 1994 and 1998 through which the three-pronged strategy of neoliberalism, internationalisation and normalisation was developed. As the Jordanian Foreign Ministry noted, these summits were ‘intended to create economic interdependencies between Arab states and Israel, promote personal contacts between the two sides and foster trade, investment and development’ (Foreign Ministry, Kingdom of Jordan).

The first MENA summit was held in Casablanca, Morocco, in 1994 and, in addition to the Arab states, was attended by then-Israeli Prime Minister Yitzhak Rabin, foreign minister Shimon Peres and 130 Israeli businesspeople. The participants agreed to take measures to lift the regional economic boycott of Israel and also to establish a Middle East chamber of commerce. The second summit was held in Amman in October 1995, and aimed at facilitating ‘the expansion of private sector investment in the region, [and] to cement a public-private partnership which will ensure that end and to work to enhance regional cooperation and development’ (see www.medea.be). As part of the Amman Summit, it was decided that the Economic Summit Executive Secretariat should be established, which would work to advance ‘the public-private partnership, promoting contacts, sharing data and fostering private sector investment in the region’.

The neoliberal ethos guiding these gatherings was continued in the third MENA summit, held under the theme of ‘Building for the Future, Creating an Investor Friendly Environment’, from 12-14 November 1996 in Cairo. The final resolution of the Cairo Conference noted, ‘The region’s economic, commercial and trade potential … is being greatly enhanced by important economic reform programs currently being undertaken by many states in the region. These reforms, which include privatisation, structural reform, and removing trade barriers, have provided for a more business-friendly eco-nomic climate throughout the region’ (US Embassy to Israel).

The trend towards normalisation with Israel appeared to stumble from the late-1990s, particularly following the onset of the Palestinian uprising in the West Bank and Gaza




Strip in late-2000. But the indissoluble link between the internationalisation of capital, normalisation, and neoliberalism in the region was confirmed in an announcement by the US government in mid-2003 to work towards consolidating the Middle East into a single, neoliberal economic zone by 2013. This strategic vision, called the Middle East Free Trade Area (MEFTA), sought a US-dominated free trade zone across the whole region – anchored by Israeli capital in the west and Gulf capital in the east.

Immediately after announcing the MEFTA initiative, US representatives began a rapid succession of Free Trade Agreement (FTA) negotiations with countries in the Middle East, focusing in particular on the Gulf region as a central pivot of the overall strategy. The Gulf countries were seen as comprising a gateway region that could be used to generalise neoliberal economic policies throughout the area. This intention was explic-itly acknowledged by US government officials, who designed FTAs so that countries could ‘moor’ with neighbouring states and thereby expand agreements into sub-regional agreements.11

The US strategy was to negotiate individually with ‘friendly’ countries in the region using a graduated six-step process that eventually led to a full-fledged FTA between the US and the country in question. These individual FTAs would then be linked over time until the entire Middle East came under US influence. An FTA was signed with Bahrain on 14 September 2004, and legislation to approve and implement the agreement was passed by US Congress in January 2006. In September 2005, the USA and Oman also agreed on the basic principles of an FTA and signed an agreement on 19 January 2006. In 2005, the USA began negotiations with its largest export market in the Middle East, the United Arab Emirates, although these have yet to be concluded. Kuwait and Qatar have also expressed interest in obtaining an FTA with the USA (Katzman, 2006: 28). All of these negotiations complemented other regional economic agreements between the USA and Egypt, Israel, Jordan and Morocco.

The implications of MEFTA, and the link between internationalisation and normali-sation, were further confirmed in a series of economic agreements signed between the USA, Israel, Jordan and Egypt to establish so-called Qualified Industrial Zones (QIZs) in the two Arab countries. Exports from the QIZs would obtain duty-free status to the USA provided they met the remarkable provision that a certain proportion of inputs were Israeli. Investments in the QIZs (particularly those in Jordan) were dominated by Asian, Gulf and other Middle East investors, carrying out sub-contracting for large com-panies such as Gap, Walmart and other clothing retailers. These zones thus exist to inte-grate Israeli and Arab capital, closely linked to the US market, in the joint exploitation of cheap labour. By 2007, the US government was reporting that exports from the thir-teen QIZs established in Jordan accounted for a massive 70 per cent of total Jordanian exports to the USA (OUSTR, 2007: 5). In 2004, Egypt also launched its first QIZ in an agreement with Israel and the USA. Three more QIZs were approved in subsequent years, and by 2006, the proportion of Egyptian exports to the USA produced in QIZs had doubled to reach 26 per cent of total exports.12

The net result of these neoliberal measures has been a qualitative deepening in the internationalisation of capital in the Middle East. Cross-border capital flows increased rapidly alongside stock market capitalisation and foreign direct investment. Much of these flows sought ownership stakes in recently privatised state assets, as the World Bank



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and IMF encouraged and cajoled governments to restructure. Aside from the advanced capitalist countries, the greatest beneficiaries of this process were the large Gulf conglomerates. With their penetration of manufacturing, banking and finance, and retail structures throughout the Arab Middle East, these companies came to dominate all economic sectors. In banking, for example, 19 out of the 20 largest Arab banks by capital size were from the Gulf region by 2005 (Timewell, 2006). In Jordan, over one-fifth of total stock market capital was owned by Gulf investors by 2007. Just three Gulf companies operating across a total of 26 countries (ZAWYA, 2006) controlled 29 per cent of the total Middle East and North Africa (MENA) region mobile-phone subscriptions.

Developments in the post-Oslo economy of the West Bank and Gaza Strip were similarly shaped by the internationalisation of Gulf capital. A key feature of the Oslo process was the return of sections of the Palestinian diaspora to the West Bank and Gaza Strip, where they integrated with local elites to constitute the social base of the PA. At the economic level, returnees came to fully dominate the structures of the Palestinian econ-omy. These individuals consisted primarily of those Palestinians that had developed as a sub-component of the Gulf capitalist class, and their main centres of accumulation continued to be located in the Gulf region. The guiding principle of their economic activities in the West Bank and Gaza Strip – clearly reflected in the range of economic agreements signed between Israel and the PA during the 1990s – was full normalisation and Israel’s integration into the Middle East. In short, the goal of normalisation that underpinned both Oslo and the US-led reconfiguration of the Middle East intersected with and reinforced the internationalisation of Gulf capital and processes of class forma-tion in the West Bank and Gaza Strip. The dominance that Gulf-based capital now has over the Palestinian economy is immense, and can be seen through an empirical mapping of the post-Oslo Palestinian capitalist class.

IV. Mapping the Palestinian capitalist class There are three interconnected ownership tiers that provide a conceptual lens for under-standing the capitalist class in the West Bank and Gaza Strip and its relationship to the internationalisation of Gulf capital. The first layer (Tier 1) consists of large conglomer-ates, generally based in the Gulf region. These conglomerates constitute part of the Gulf capitalist class, although the most important in regards to the West Bank and Gaza Strip are owned by those diaspora Palestinians who became integrated with Gulf capital as it developed from the 1970s onwards. In addition to this Palestinian-Gulf capital, there are other non-Palestinian conglomerates and investment companies based in the Gulf (e.g. Global Investment House). This tier also involves a network of banks and finance capital that are active on the regional scale, and which connect the groups in joint investment and financial activities across the Middle East. The second layer of ownership, Tier 2, operates at the scale of the West Bank and Gaza Strip. This tier is made up of large hold-ing companies that bring together the groups and companies constituting Tier 1. Finally, the holding companies in Tier 2, combined with direct investments from Tier 1, control the most important medium- to large-sized companies active in the West Bank and Gaza Strip (Tier 3).




Tier 1 – internationalised Gulf capital

Within Tier 1, the most prominent networks are controlled by the Al Masri and Khoury families. These two families and their associated companies are the largest Palestinian sub-components of the Gulf capitalist class. Both locate their family origins in pre-1948 Palestine, but were integrated into the emerging Gulf capitalist class in the post-1970 period. They are closely connected to the Gulf monarchies and US capital. Despite their domination of the economy of the West Bank and Gaza Strip, their main geographical area of capital accumulation remains the Gulf region.

Two cousins, Munib and Sabih, are the influential figures of the Masri family. Sabih Al Masri established the Arab Supply and Trading Corporation (ASTRA) in 1967 in Saudi Arabia.13 The company’s initial source of accumulation was the provision of food to the Saudi military. In 1976, the company won a major contract to supply food and other provisions at the important military centre of Tabuk, located in north-west Saudi Arabia. In the same year, ASTRA established a construction division that built two of Tabuk’s hospitals, including the first private hospital. It also won construction contracts for government buildings, air bases and housing complexes in the area. Through succes-sive government contracts, ASTRA developed into the largest single food supplier for the Saudi military and a major distributor and manufacturer of fertilisers, pesticides and seeds throughout the Middle East and North Africa.

In addition to being one of the largest agricultural companies in Saudi Arabia, ASTRA has subsidiaries involved in the manufacture of pre-fabricated steel buildings, plastics, irrigation systems and bedding. In 1989, it established a telecommunications company that designs, engineers and constructs communications systems for civilian and military organisations in the region. A further massive source of profits came through contracts with the US military to supply food to all 1.1 million soldiers involved in the invasion of Iraq in 1990-1991. By 2006, ASTRA had become the

Figure 1 Ownership structure of the Palestinian capitalist class in the West Bank and Gaza Strip



Hanieh 93

second largest private conglomerate in Saudi Arabia, and was ranked 23rd of the top 100 Saudi companies. Through Sabih al Masri, the family dominates an important bank in the Arab world: the Cairo Amman Bank (CAB). Sabih al Masri owns around 5 per cent of CAB directly, but through Al Masira Investments (wholly owned by the Al Masri family) and the 10.5 per cent of CAB owned by Sabih’s wife, Najwa Madi, the Masri total holdings reach around 34 per cent.14

Similarly, the development of Munib Al Masri’s business empire was also closely related to the growth of the Gulf states and their oil industries. Munib founded one of the region’s first privately owned engineering companies, EDGO, in 1956. Although EDGO was based in Jordan, the principle source of its profits derived from contracts with foreign companies to provide equipment, maintenance, drilling and engineering support to com-panies involved in the Gulf oil and gas industry. More recently, EDGO has expanded into construction work, winning lucrative tenders including a build-operate-transfer contract for the major Jordanian airport and an upgrade of Beirut International Airport. It is also involved in the privatisation of power and water in countries such as Oman, Qatar and the UAE. In 2006, Munib al Masri was worth $1.62 billion, and was listed as being the 34th richest Arab in the world by Arabian Business.

The other major conglomerate enriched through activities in the Gulf is the Khoury family group. After fleeing Palestine in 1948, Sa’id Khoury1 established the Consolidated Contractors Company (CCC) in 1952 with another Palestinian businessman, Hasib Sabbagh. CCC’s initial capital accumulation occurred as a result of its close partnership with the largest engineering company in the USA, Bechtel. Its first contract was to lay the Iraq Petroleum Pipeline from Kirkuk, Iraq to Tripoli, Lebanon. Following this, CCC essentially followed Bechtel around the Middle East, building much of the infra-structure of the Gulf countries (Clark, 2005). CCC grew to be the largest construction company in the Middle East, and the 13th largest engineering contractor by revenue in the world. For most of its history, CCC was headquartered in Athens (to take advantage of a loose regulatory environment), with its major revenues and largest projects based in the Gulf region.

In addition to the Masri and Khoury families, other internationalised Gulf-based capital helps to constitute the core of Tier 1. These are involved in manufacturing, ser-vice and retail activities, and are closely connected to the largest banks in the Arab world. Although not all of these groups are registered or headquartered in the Gulf, their pri-mary base of accumulation is centred on the Gulf region. A brief outline of these con-glomerates is presented in Figure 2.16

Tiers 2 and 3: Holding companies and the domestic Palestinian economy

The second tier of the capitalist class operating in the West Bank and Gaza Strip is organised through several interconnected holding companies. These holding companies act as a nexus for the internationalised capital discussed above, integrating them within joint-ownership structures that are active in the West Bank and Gaza Strip. These holding companies also act as a mechanism for bridging ‘state’ capital (i.e. capital provided




Company name Description

Sukhtian Group The MS Group is controlled by three brothers, Nidal, Ghiath and Munjed Sukhtian. In Jordan and Palestine, the group operates under the name Munir Sukhtian Group, while internationally it operates as Munir Sukhtian International. The brothers are of Palestinian origin, but their main business activities are in the Gulf, Jordan and North Africa. The MS Group is closely connected to Masri Group through joint holding of some companies in the ASTRA Group, such as ASTRA Agricultural Company and ASTRA Chemical. The connection with the Masri group extends to a large number of jointly held companies that are prominent bidders for US government funded projects in Iraq and Afghanistan.17

Aggad Group The Aggad Group is one of the largest companies in the Gulf. It holds the sole distribution rights for Chrysler and Dodge throughout Saudi Arabia. In telecommunications, it has the exclusive distributor rights for Motorola and Siemens. It is involved in the manufacture and distribution of pharmaceuticals, software and IT, elevators and aluminium. The chairman of Aggad, Omar Aggad, was a founding board member of the Saudi British Bank, where he served for 23 years. He is also a board member of the Bahraini-based Investcorp Bank.

Kingdom Group Kingdom Holding is owned by Waleed Bin Talal al Saud, nephew of the Saudi Arabian king and the richest person in the Arab world. Bin Talal is the largest individual foreign investor in the USA through his 5.46 per cent stake in News Corp. Kingdom is the largest shareholder in Citigroup, and is the second biggest holder in media in the world, after Rupert Murdoch. It is the second biggest shareholder in Canary Wharf – the biggest real estate development in London. Kingdom owns the Fairmont and Mövenpick hotel chains.

Olayan Established by a Saudi merchant family in 1947, the Olayan Group began as a transportation contractor for Bechtel in the Trans Arabian Pipeline project, which aimed to link Saudi oil fields to distribution facilities in Lebanon. During the 1950s, Olayan founded the first public utility in Saudi Arabia – the National Gas Company. During the 1960s and 1970s, it acted as agent for a range of international capital (including providing bottling and distribution services for Coca-Cola, Kraft Foods, Nestlé, Kimberly-Clark, Colgate-Palmolive, Australian Rice Growers, Nabisco, Polaroid, Pillsbury and others). It is the Burger King franchisee for the Middle East. The group continues to work with Bechtel, planning and managing major infrastructure projects, including airports, power plants, refineries, industrial cities, telecommunications and oil and gas field development. It also operates residential communities for expatriates in Saudi Arabia. Hutham Olayan, president of the group, was appointed a board member of Morgan Stanley in 2006. Olayan owns 20 per cent of the Saudi Hollandi bank, one of the largest banks in Saudi Arabia, and 70 per cent of Peel Holdings, one of the UK’s most powerful property developers, which owns Liverpool’s John Lennon Airport, the Trafford Centre shopping complex, the Manchester Ship Canal, Glasgow Harbour and the Mersey Docks.

Oger The Oger Group is one of the largest conglomerates in the Middle East. It is a Saudi Arabian company, controlled by the family of the Lebanese billionaire Rafiq Hariri. Oger has interests in construction, telecommunications, banking, tourism and the service sector. Its initial and major source of accumulation was through contracts received from the Saudi state. These have included projects such as the Royal Diwan



Hanieh 95

through the institutions of the Palestinian Authority) with the internationalised Gulf-based conglomerates. The holding companies completely dominate the political economy of the Palestinian territories, and it is almost impossible to find a large- or medium-sized company in which they do not own a significant stake.

The most important of these holding companies is the Palestine Development and Investment Company (PADICO). PADICO was established in 1993 with a paid up capital of US$200 million. A complex ownership structure of interconnected networks lies behind PADICO, but some of the main internationalised groups related to it

(Continued)

Company name Description

buildings in Riyadh and Jeddah as well as military bases and training colleges for the Saudi armed forces. It is a major developer in Jordan, awarded the largest-ever property development project in the country’s history – to extend the Gulf of Aqaba, in 2006. The Oger group controls the main Turkish telecommunications company, Turk Telecom (the country’s fixed-line operator), as well as Avea, the third-largest cell operator in the country. It also controls Cell C, one of the largest mobile companies in South Africa and Cyberia, an internet service provider operating in Saudi Arabia, Jordan and Lebanon. The Oger Group holds the largest individual share of the Arab Bank, the second largest bank by capital size in the Arab world in 2006.

Dallah Al Baraka Dallah Al-Baraka conglomerate is a massive Saudi group owned by Saleh Abdullah Kamel. Kamel made his wealth from maintenance and cleaning contracts with foreign companies, and later contracts with Saudi Ministry of Defence. In addition to ten banks operating across the Middle East, Dallah Al Baraka also controls the media conglomerate, ART. One of the banks controlled by Al Baraka, the Jordan Islamic Bank, is active in the West Bank and Gaza Strip.

Global Investment

Global Investment House is the largest investment banking firm in Kuwait. It is involved in providing corporate finance, advising on M&As and privatisation, mutual fund management and asset management. Shareholders include the Kuwaiti Al Homaizi Group, an influential family involved in meat import and foodstuffs. Other Kuwaiti shareholders in Global Investment House include the state-run Kuwaiti Public Institution for Social Security, and the largest industrial company in Kuwait, the National Industries Group. The investment authority of the Dubai government, Dubai Holdings, also has a 3 per cent stake in Global Investment House. Global Investment is the largest shareholder in the Al Quds Bank for Development and Investment, a bank operating in the West Bank and Gaza Strip.

Sayegh Group The Sayegh Group is a large conglomerate involved in paint and chemical production, property and engineering. The Sayegh family is of Palestinian origin, but moved to Jordan after 1948. The group is the largest paint producer in the Middle East, with its main factories located in Jordan and the Gulf. It also has property activities in Europe. Along with a Kuwaiti family, Saleh, the Sayegh group is the major owner of the Jordan Commercial Bank.

Figure 2 Major internationalised capital operating in the West Bank and Gaza Strip.20




include the Al Masri Group (through the Cairo Amman Bank, Al Masira Investments and Zara Holdings), the Oger Group (through the Arab Bank), Kingdom Group, and the Sukhtian Group. PADICO acts as a major node through which these groups are interlocked.

PADICO’s influence on the Palestinian economy is extremely widespread. In addi-tion to its direct control of some of the largest companies in the West Bank and Gaza Strip (see below), PADICO also controls four smaller holding companies: the Palestine Real Estate and Investment Company (Aqaria), the Palestine Tourism Investment Company, the Palestine Industrial Investment Co., and the Palestine Industrial Estates Development Co. In each case, PADICO holds a controlling share of these holding companies with the remainder held by one or more of the internationalised groups out-lined above.21

A major holding company that lies outside of the PADICO network is the Arab Palestinian Investment Company (APIC). APIC was launched in 1995 and its major shareholders include the Aggad Group, Khoury Group, Kingdom Group, Olayan Group and a number of others that are mostly based in the Gulf region. Although APIC is smaller than PADICO in terms of capitalisation, it is a very influential holding company thanks to its role as an import agent for major international capital. APIC controls, for example, UNIPAL (with 75 per cent ownership), which is the agent in the West Bank and Gaza Strip for Phillip Morris, Procter & Gamble and Kraft, amongst other compa-nies. Furthermore, APIC is the sole distributor for major pharmaceutical and cosmetic companies including Abbott International, Aventis, Eli Lilly, and GlaxoSmithKline through its subsidiary, Medical Supplies and Services Co. (MSS). APIC is the sole agent for Hyundai vehicles through its Palestine Automobile Company (98 per cent ownership). It also has significant holdings in the telecommunications company Paltel, and the Palestine Electricity Company.

The holding companies of Tier 2, interlocked with investments from the internation-alised groups in Tier 1, control the most important medium to large companies that make up Tier 3 of the local Palestinian economy. Figure 3 details these companies. The list is drawn from companies listed on the Palestine Stock Exchange (data from 2007) in addition to some of the largest unlisted companies. It details those companies that oper-ate almost exclusively in the West Bank and Gaza Strip, and can thus be considered representative of the local Palestinian economy.22 Figure 3 confirms the complete domi-nation of the large internationalised groups of Tier 1 – whether acting independently or through one of the major holding companies in Tier 2 – over the local Palestinian econ-omy in the West Bank and Gaza Strip.23

VI. Conclusion: Palestinian capital and US powerThe ownership patterns outlined above demonstrate the profound control exerted by large Gulf-based capital on the structure of the Palestinian economy. Virtually without exception, the major banks, industrial and manufacturing companies are controlled by groups that are best understood analytically as being sub-sectors of the Gulf capitalist class. In many cases, individuals with Palestinian national origins may lead these groups. In other cases, Saudi, Kuwaiti and other Gulf capital holds direct ownership of Palestinian



Hanieh 97

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25



Hanieh 99

companies. Regardless of its particular national origins, the main zone of accumulation for the largest Palestinian capital groups is found externally, and is closely tied to economic and political developments in the Gulf states.

An analytical framework that recasts the process of class formation in the West Bank and Gaza Strip through this regional lens clarifies the nature and role of Palestinian capital. Precisely because accumulation is not simply driven by factors endogenous to the Palestinian economy, the political economy of Palestinian capitalism needs to be inter-preted through the broader trends of capital internationalisation in the Middle East. Palestinian capital conceptualises its field of accumulation at the regional scale, and not solely within the Palestinian territories. Organically intertwined with accumulation pro-cesses in the Gulf, Palestinian capital thus fully embraces the vision of a neoliberal Middle East, with its unimpeded movement of capital and goods and the exploitation of cheap labour (whether local or migrant) within ‘special’ industrial zones.

Following from the earlier critique of ‘transnationalism’, the internationalisation of Gulf capital should not be understood as signaling the weakening or undermining of the role of the state. Rather, Palestinian state formation is compelled to align with the accumulation needs of the international scale. The dominance of internationalising Gulf capital within the Palestinian economy has acted to strengthen the institutions of the Palestinian Authority as a mechanism of mediating capital accumulation in the West Bank and Gaza Strip. The type of end-point envisioned by Israel, the USA and the EU and the Palestinian Authority, does not mean the erasure of borders but rather their establishment in the form of a truncated Palestinian state. The internationalisation of Gulf capital casts a particular character onto the form of state-building in the West Bank and Gaza Strip – it does not negate the need for state institutions.

This perspective provides a potentially fruitful avenue through which to explore contemporary debates within Palestinian politics. The disputes between Hamas and Fatah for example – reflected spatially in the division between Gaza and the West Bank – are mediated by these class factors. Opposition to the political project of the Abu Mazen-led PA has coalesced around the Islamist movements (particularly Hamas), which have challenged any move towards normalisation with the Israeli occupation and have often directed their rhetoric towards the poorest and most marginalised layers of Palestinian society in the West Bank and Gaza Strip. Hamas does not possess the same close linkages with the Palestinian capitalist class shown by Fatah and the mainstream wings of the PLO. At the same time, these class differences must be interpreted in a nuanced manner. Hamas has historically drawn much of its material support from fundraising efforts in the Gulf region, and its religious character has made it difficult for the movement to distance itself from Gulf regimes such as Saudi Arabia. It is clearly beyond the scope of this paper to explore this problematic in any detail, but the implications are suggestive – a full understanding of Palestinian politics requires an examination of the role of Gulf capital and its internationalisation through the Middle East.

One illustration of this is the close alignment between the Palestinian capitalist class, the institutions of the Palestinian Authority in the West Bank and the form of state-building it has embraced. As discussed above, the large Tier 2 holding companies such as PADICO and its various subsidiaries act as a nexus for state investments and Palestinian capital. These holding companies are the main institutions that implement national development plans for telecommunications, industrial zones, agriculture and tourism.




Furthermore, family members of high-ranking Palestinian Authority figures in the West Bank are found on the boards of many of the key Palestinian companies discussed above. Abu Mazen’s son, Tareq Abbas, for example, is a former senior employee of the CCC and after returning to Palestine became a vice-president of the Arab Palestinian Investment Company (APIC) as well as general manager of the largest advertising company in the West Bank (an APIC subsidiary).

These linkages also help to interpret the character of the Palestinian Authority devel-opment model, summarised in the November 2007 Palestinian Reform and Development Plan for 2008-2010 (PRDP). The PRDP became the official PA economic strategy following the extensive efforts of the World Bank and other international financial insti-tutions. It is one of the most aggressively neoliberal plans of any state in the region, advancing a private-sector-driven vision in which the aim is to attract foreign investment and reduce public spending to a minimum. All external donor funding to the PA has been made contingent on its implementation, and these flows are now controlled through a dedicated bank account managed by the World Bank.26

The neoliberal outlook of the PRDP is illustrated by both its ‘reform’ and ‘develop-ment’ components. In the former, the fiscal measures advocated by the PRDP include a massive 21 per cent cut in public-sector employment and a wage freeze for all public-sector workers. The capitalist groups active in the Palestinian territories have been vocal supporters of these measures and others, which portend a disastrous impact on the local Palestinian population. Palestinian capital has also strongly promoted the PRDP’s ‘development’ component – a plan centred on the establishment of a set of industrial zones located at the edges of Palestinian areas that bear a close resemblance to the QIZs discussed above. Although these zones will employ cheap Palestinian labour, their oper-ation will be closely coordinated with the Israeli military, and will involve joint invest-ments with Israeli and other regional capital.

This orientation of Palestinian capital to neoliberalism and normalisation was starkly confirmed at the ‘Palestine Investment Conference’ (PIC) held in Bethlehem from 21-23 May 2008. The conference was organised with the strong backing of the Israeli and US governments, and formed the major point of discussion at a summit convened in Jerusalem on 30 March 2008, between Condoleeza Rice, Israeli defence minister Ehud Barak, and Palestinian Authority Prime Minister Salam Fayyad. The PIC was attended by all of the key figures in the Palestinian Authority as well as the major capitalist groups outlined above, including the Arab Bank, the Cairo Amman Bank, PADICO, Paltel, the Consolidated Contractors Company, Global Investment, and the Arab Palestinian Investment Company.

The main aim of PIC was to showcase the PRDP as being ‘good for business’ and an attractive reason to invest in the Palestinian economy. Several industrial zone proj-ects were promoted throughout the conference, which was aimed at bringing together Arab and Israeli capital in joint investments. One example of these was the ‘Corridor for Peace and Prosperity’ (CPP), which envisions an agro-industrial zone in the fertile areas of the Jordan Valley. This free-trade agricultural zone will turn the small-scale Palestinian farmers into day-labourers and sub contractors to large agro-industry con-trolled by Israeli and Gulf capital, with the produce intended for export to Israel and the Gulf states.27



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Projects like the CPP and others promoted at PIC fully confirm the political implications that flow from the analysis of Palestinian class formation elaborated above. Palestinian capital, precisely because of its characteristics as a sub-component of Gulf capital, is closely aligned with the interests of US power in the region. This class formed under the aegis of the political and economic changes engendered by the US at a regional level throughout the 1990s, and remains wholly committed to supporting and deepening those changes.28 Within the US strategic framework for the Middle East, the role played by this class is essential to the further extension of neoliberalism in the Middle East and the success of projects such as MEFTA. A particularly intimate relationship has thus developed between Palestinian capital and the articulation of US power in the Middle East.

The commitment of Palestinian capital to neoliberalism, normalisation with the Israeli state, and the further consolidation of US interests throughout the Middle East is a vision that stands counterposed to the interests of the people of the region. This is reflected in the character of the Abu Mazen-led Palestinian Authority – closely con-nected to Palestinian capital and heavily promoted on the world stage by the US and other international powers, but lacking widespread popular support in either the West Bank or Gaza Strip. Most significantly, the relationship between Palestinian class forma-tion and capital accumulation in the Gulf underscores the regional dynamics of the Palestinian question. Its resolution will not be decided solely within the Palestinian arena – but depends upon successfully confronting the hegemonic role of capital across the entire region.

AcknowledgementThe author wishes to thank Greg Albo, Issam Al Yamani, Sobhi Samour, Rafeef Ziadah and three anonymous referees for many thoughtful comments on earlier drafts of this article.

Notes 1. References to the Gulf throughout this paper refer to the countries that constitute the Gulf

Cooperation Council (GCC): Saudi Arabia, Kuwait, United Arab Emirates, Bahrain, Qatar and Oman. Particular emphasis is placed on Saudi Arabia and Kuwait due to their historic role in Palestinian capital accumulation.

2. The radical critique of neoliberalism is vast, but see Harvey (2003, 2005) and Saad-Filho and Johnston (2005) for two approaches that broadly coincide with the analysis advanced in this paper.

3. Jordan also initially played a significant role in this process. Likewise, other non-Palestinian Arab capitalists were absorbed into the Gulf capitalist classes. A particularly prominent example of the latter is the Lebanese capitalist Rafiq Hariri, whose company, Saudi Oger, evolved as part of Saudi capital (see below).

4. Palloix stressed that the internationalisation of capital needed to be distinguished from any notion of capital as a thing or form (e.g. the multinational company). Rather, the concept of capital expresses a certain set of social relations. ‘The multinational firm only designates the forms which the self-expansion of social capital assumes. We cannot focus too long on these forms which are always subject to change in response to the requirements of self-expansion. The issue of the multinational firm is thus nothing but the ideological expression of other




issues which are more substantial: the internationalization of capital, the international modes of accumulation of capital, and the class struggle on an international scale’ (Palloix, 1997: 5).

5. In addition to their position as contractors in the industrial sector, the Gulf conglomerates benefited as import agents for the large multinational corporations that supplied basic commodities to the Gulf region. Given the virtually non-existent level of domestic com-modity production, the Gulf markets were dominated by foreign commodity imports to satisfy basic market demand. The emerging Gulf capitalist class captured a portion of these flows as distributors and agents for these multinational imports. A further component of the accumulation base of these conglomerates was banking and finance, with the Gulf conglomerates establishing the first locally owned banks (often as partners with state and international banking capital). In this manner, the conglomerates were able to gain access to credit channelled through the banking system as low interest loans from the state. As a consequence, these Gulf conglomerates – including their Palestinian sub-components – developed into a complicated network of companies involved in manufacturing, imports, construction and engineering, and finance. See Hanieh (2010) for further discussion of this process of class formation.

6. Rouleau and Paul state that only 400 Palestinians out of a total of 600,000 living in the Gulf had gained citizenship by 1985, 250 of whom were living in Kuwait (1985: 14).

7. In the opinion of this author, an informed historical materialist reading of this history is still largely to be written. The insightful work of Rosemary Sayigh (1979), Pamela Ann-Smith (1984; 1986), and the pamphlets of some of the Palestinian left factions of the PLO during these years present a starting point for this analysis. But much empirical work remains to be done on the way in which diasporic Palestinian capital was initially integrated into the capitalist classes of Lebanon and Jordan, and then marginalised following the Israeli occu-pation of the West Bank in 1967; the development of the PLO; the Jordanian civil war in 1970; Israeli invasions of Lebanon in 1978 and 1982; and the ever-shifting alliances between the Palestinian left and other communist movements in Lebanon, Jordan and Syria. In the author’s opinion, this theoretical investigation requires a focus on class formation in Jordan and Lebanon, rather than simply an analysis of the Palestinian diaspora. At the heart of this complex problem is the intertwined relationship between the Palestinian national and class struggles in an exile population on one hand, and the development of capitalism in the Middle East on the other. This problem is further complicated by the concurrent process of class formation in the West Bank and Gaza Strip.

8. Yezid Sayigh’s history of the Palestinian national movement documents this process well, particularly the concentration of wealth in the hands of Arafat and the resultant de-politicisation and servility encouraged in leading cadre (see Sayigh 1997: 454-463). Sayigh reports that throughout the 1980s, official Saudi government contributions to the PLO amounted to $30 million ‘every few months’ (p. 603). To these need to be added the undocumented contributions of key Palestinian capitalists in the Gulf as well as other Arab governments.

9. The reasons for this almost universal adoption of neoliberalism are numerous and go beyond what can be explored in this paper. The impact of the first Gulf war (1990-1991) and the subsequent hegemonic position of the USA across the Middle East are two key factors.

10. Stanley Fischer, first deputy managing director of the International Monetary Fund, noted the enthusiastic support of GCC countries towards neoliberalism in his speech to the fourth



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MENA conference in Doha: ‘those in MENA who are still not convinced about the merits of open economic systems should look no further than their GCC neighbors. To be sure, the GCC countries have their share of economic challenges … [but] … [f ]ortunately, there is now a broad consensus on what needs to be done.’ Fischer went on to explain that this consensus meant that there was no need to convince state policy-makers of the soundness of the neoliberal programme, which made the ‘policy dialogue with the GCC countries, and with the MENA region as a whole, more fruitful as we focus less on what to do and more on how to do it’ (Fischer, 1997).

11. See, for example, Zoellick’s comments at a press conference in Jordan following the World Economic Forum in 2003: ‘we could start to combine [FTAs], for example, we look towards the possibility of countries in the Gulf perhaps joining into the Bahrain Free Trade Agreement, making specialized arrangements for their goods and agriculture but following the basic rules, and that would have a benefit of encouraging regional integration, so that their products to qualify would not have just to come from Bahrain, but may come from Qatar or Oman or from UAE or a combination of that. So we can encourage regional integration in the process, whether in the Gulf, whether in the Maghreb or whether in other parts of the Arab world. And the ultimate goal, as the President said, would be to draw these into the Middle East Free Trade Area. That, of course, depends on the willingness of countries to undertake these reforms’ (Zoellick 2003).

12. Further discussion of US power in the Middle East, the Middle East Free Trade Area, and Qualified Industrial Zones can be found in Hanieh (2008).

13. Information taken from ASTRA Corporate profile, online at <www.astra.com.sa>.14. In addition to the Masri Group, a significant proportion of CAB is held by the Talhouni

family (12%), a prominent Jordanian business group with close ties to the Jordanian state. The Masri and Talhouni groups are closely linked through the jointly owned Zara Holdings, which operates luxury hotels throughout Jordan.

15. In 2006, Sa’id Khoury was estimated to be worth US$6 billion, and was listed as being the 11th richest Arab in the world by Arabian Business. Khoury is also the governor of the Arab Monetary Fund.

16. This list is by no means intended to represent an exclusive picture of the companies that constitute Tier 1 or that are involved in the Palestinian economy.

17. These companies include Anham LLC, which is jointly held by the Masri Group’s ASTRA, the MS Group and a third finance company in the US. Anham won a US$258 million contract to provide military equipment to the Iraqi army and police, a US$121 million contract to build and design a security infrastructure for Iraqi oil, and contracts worth US$230 million to supply vehicles to the US Department of Defense in the Ukraine and Romania.

18. The Arab Bank was initially established by the Shoman family (of Palestinian origin, based in Jordan), and consistently rates as one of the largest in the Arab world. In 2006, it held second position by capital size in the Top 100 Arab Banks. It has the largest Arab banking branch system worldwide, with 400 branches across 29 countries in 2007 (arabbank.com). The influence of the Shoman family has dropped considerably over recent years to around 8% of ownership. Despite the fact that the bank is formally registered as a Jordanian bank, a dominant proportion of ownership is now held by capital based in the Gulf (Oger Group 14% and the Ministry of Finance, Saudi Arabia 4.5%). Sabih Al Masri also sits on the bank’s board.




19. Global Investment House was chosen by the US army in Iraq to run American restaurants such as Pizza Hut and Burger King (for which they manage the franchise in Kuwait). They are also the sole agent for the Swedish furniture franchise IKEA in Kuwait.

20. Information on these groups is drawn from company websites and annual reports.21. The key owners and ownership share (where available) of these four holding companies are as

follows: Palestine Real Estate and Investment Company (PADICO 36%, Global Investment House 30%, Arab Bank, Al Masira Investments, Cairo Amman Bank, Consolidated Contractors Company); Palestine Tourism Investment Company (PADICO 38%, Zara Investments, Arab Bank, Cairo Amman Bank); Palestine Industrial Investment Co (PADICO 60%, Arab Bank, Sukhtian Group, Aqaria, Al Masri Group); Palestine Industrial Estates Development Co. (PADICO 83%).

22. It excludes, therefore, the large banks operating in the West Bank and Gaza Strip such as the Arab Bank, Cairo Amman Bank, Jordan Kuwait Bank, Jordan Islamic Bank, Jordan Investment Bank etc. These banks operate at a regional level and are properly considered part of Tier 1 (see Figure 1 for the groups to which they are connected). It should be noted that the Arab Bank and Cairo Amman Bank dominate the banking sector, holding around 60% of total customer deposits between them (Performance of the Banking System Until February 2005, pnic.gov.ps).

23. This ownership data should not be interpreted to mean that there is no local capital holding important shares of the Palestinian economy. These do exist, particularly in Jerusalem and the Gaza Strip. Their influence, however, is much smaller than the Gulf-based companies outlined above.

24. It should be noted that 95% of all Palestinian electricity consumed is provided by Israeli suppliers (PIF Guide: 46).

25. Information compiled in 2007 and drawn from company websites, annual reports and zawya.com.

26. Further analysis of the PRDP can be found in Hanieh (2008).27. Despite the full support of Palestinian capital and the PA for PIC, grassroots Palestinian

organisations vocally opposed the conference because it advocated a development model based upon normalisation with Israel. A statement put out by the Steering Committee of the National Boycott, Divestment and Sanctions Committee and endorsed by a wide array of political forces noted that the conference had ‘serious political implications that cannot be ignored … The proposed projects take as their starting point Israeli participation in decision-making, and Israeli control over their legal status … [they] are designed to meet the economic demands of the Israeli administration, not those of the Palestinian people … These are not the development projects we want or need’ (www.bdsmovement.net).

28. For clarity’s sake, it should be emphasised that the alignment of the Gulf capitalist classes with US power does not mean that there are no separate interests between these two forces. The presence of large amounts of surplus capital does give the Gulf states some ‘relative autonomy’ vis-à-vis the USA in the region. Nevertheless, the conditions that facilitated the rise of Gulf capitalism and its internationalisation in the Middle East were predicated on the successful extension of US power. Moreover, the Gulf states are completely dependent upon the USA for their ongoing military protection, and they remain the key staging post for the US military in the region. The consistent record of support shown by the Gulf states to US policy in the area – Iraq, Iran and Afghanistan being only the most recent examples – is



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sufficient evidence to dismiss any argument that the Gulf states are an independent competitor to US capitalism in the Middle East.

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Author biographyAdam Hanieh is a lecturer in development studies at SOAS, University of London. His research interests include the political economy of the Middle East, labour migration and development, and Marxist theory. His book Capitalism and Class in the Gulf Arab States will be published by Palgrave Macmillan in 2011. In addition to his academic work, he is actively involved in the Palestine solidarity movement and other political struggles.



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