Peter Hain: one-state solution to Israeli-Palestinian conflict must be considered

The Labour MP and former cabinet minister says a one-state solution could "more easily resolve the deadlock than the two-state solution I and many others have long favoured".

For decades there has been a bipartisan consensus that a two-state solution is the best means of resolving the Israeli-Palestinian conflict. But in a lecture tonight at the University of Swansea, published exclusively by The Staggers, Peter Hain will become the first British figure with direct ministerial experience to argue that after decades of failure, a one-state solution - the establishment of binational state with equal rights for Israelis and Palestinians - must now be seriously considered. 

Hain, who served as minister for the Middle East from 1999-2001, will say: 

For two decades I have favoured a two-state solution as the best plan for peace and the fairest outcome, one backed by the US, the United Nations, the European Union and all 22 countries of the Arab League. Officially, it’s the stated policy of the current Israeli government and of the Palestinian Authority.

But I am increasingly unsure about whether it’s still achievable – mainly because, as time has marched on, and successive negotiating initiatives have come and gone, the land earmarked for a viable Palestinian state has been remorselessly occupied by Israeli settlers.

And I’m not alone. John Kerry and William Hague have both talked of "the window for a two-state solution" closing. In April 2013, prior to launching yet another peace initiative, the US Secretary of State warned: "I think we have some period of time – a year to a year-and-a-half to two years or it’s over." On 18 June 2013, the British Foreign Secretary echoed those words in the House of Commons: "time is running out for a two-state solution".

There is also a marked dissonance between popular support for a two-state solution on the one hand, and popular scepticism that it is achievable on the other. A 2012 poll by the Konrad Adenauer and Ford Foundations showed that 70 per cent of both Israelis, and Palestinians in the West Bank and Gaza, thought the chances of establishing an independent Palestinian state by 2017 were "low" or "non-existent".   

The fundamental problem is this: sooner rather than later the land available to constitute a future Palestinian state will have all but disappeared.

Indeed, in defiance of the UN, the US and the EU, the Likud-led government has continued to expand Israeli settlements in the West Bank and East Jerusalem to the point where there are now more than 550,000 settlers there, controlling 42 per cent of the land and representing nearly 10 per cent of the Israeli Jewish population. With every new settlement that is constructed, the possibility of a viable and contiguous Palestinian state recedes further.

At least rhetorically, Binyamin Netanyahu has committed to a two-state solution. In 2009, he declared that he was willing to see the establishment of a Palestinian state, albeit one barred from having an army and controlling its airspace. But through his actions he has repeatedly undermined this pledge. 

As Hain will go on to say:

[I]f Israel’s relentless expansion into Palestinian territories cannot be stopped then we must face one of two possible outcomes. The first is that all Palestinian presence in the West Bank and East Jerusalem remains in a permanent and ever-more formalized "Bantustan status", islands of minimal self-governance with the continued denial of basic rights, facing on-going pressure, perpetual insecurity and possible future physical removal. The second is that they are absorbed into a common Israeli-Palestinian state with the opportunity for pluralism and human rights advancement.

Is that solution now the only one capable of stopping the cycle of violence and preserving Israel’s potential to become a force for unity and peace, instead of a beleaguered source of division and a target for attack? And if the window for the two-state solution is indeed closing, then should the EU, the US and the UK make it plain to Israel that a one-state alternative may be the only one available to ensure its security?

A one-state solution has long been the favoured option of many secular Israelis and Palestinians for reasons of principle. What has changed is the number who now support it for reasons of pragmatism. Hain will conclude: 

[W]hat guarantees might there be for Jewish citizens both within Israel and worldwide if they agree the merger of their creation – a Jewish state which they fervently (and understandably) believe answers their post-Holocaust question: "Never Again"?  Could the Arab nations join those in the West like the US and the UK to provide such guarantees? 

What sort of common state might then be politically feasible and deliverable? Could a federal or confederal state provide a way forward, with common security, a unified economy, common civil rights and guarantees of religious freedom for Jews and Muslims, but considerable political autonomy for the territories within it of "Israel" and "Palestine"? How then might Israeli and Palestinian security forces be integrated?

These are fundamental, difficult and complex questions – but, if successfully answered, could a common state solution more easily resolve the deadlock than the two-state solution I and many others have long-favoured?

I remain uncertain. But I ask because I do not see how either the Israelis or the Palestinians can secure their legitimate objectives by perpetuating for still more decades their unsustainable and unstable predicament, with a two-state solution slipping away while violence and terrorism lurks constantly.

His questions are ones that no responsible leader can now afford to ignore. 

Update: Labour has been swift to slap down Hain. A spokeperson told me this afternoon: 

Peter Hain does not speak for Labour on foreign affairs and his views on the Middle East Peace Process do not represent Labour Party policy. Labour is fully committed to a two-state solution with a viable Palestinian state living side-by-side with Israel, and we support the ongoing work of US Secretary of State, John Kerry, to help re-start negotiations towards achieving this goal.

The spokesperson also pointed me to Douglas Alexander's speech in July 2013 in which he said: 

"…to those who say a two state solution is now a fantasy, I say it is a fantasy to think a one state solution could ever be either sustainable or consistent with Israel’s democratic values.

A one state solution is simply not a solution at all.  It would mean either the demise of Israel as a Jewish state or the demise of Israel as a democratic state. It would be the end of the dream of national self determination for the Jewish people."

Labour MP Peter Hain, who served in the cabinet from 2002-2008 and as minister for the Middle East from 1999-2001. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?