Palestinian Losses in 1948: Calculating Refugee Compensation
Source: Center for Policy Analysis on Palestine
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By Atif A. Kubursi
Information brief,
Number 81, 3 August 2001 Overview :
Since 1987 almost every major peace
agreement signed has included provisions
for the return of displaced persons.
Compensation for lost property and
opportunity has been recognized as
essential in the reconciliation process.
Compensation and the right of return
are increasingly seen as complementary,
not as substitutes for one another.
Restitution of property and compensation
for lost opportunities are primary
components of the rights of refugees,
regardless of whether they choose
to return to their homeland. Compensation
generally covers at least six situations:
(1) refugees choosing not to return;
(2) returnees who lost movable or
immovable property or suffered material
damage to property; (3) incomes derived
from the use of refugee property;
(4) lost income streams, pensions,
insurance, and deposits; (5) collective
goods, such as infrastructure and
natural resources; (6) non-material
damages, such as psychological injuries.
Compensation estimates are only
meaningful within the overall context
of the empowerment of refugees and
the preservation of their options
and choices. Not all aspects of the
loss of a homeland can be measured
in monetary terms. The argument here
is that acceptable monetary value
may be assigned as fair compensation
for property losses. For Palestinians,
compensation would be a partial payment,
at best, for the enormous losses
and suffering endured for more than
53 years.
Finding a Formula: There
are several precedents delineating
compensational losses and the financial
values assigned them. The documentation
used by Jews in their submissions
for compensation to Germany for the
crimes of the Nazis is part of the
basis for the values and estimating
procedures used here.
The Palestinian economy, which Israel
replaced, was a viable one with a
significant flow of output and income
that sustained a growing population
of approximately two million people
in 1948. In 1944, national income
at market prices was estimated at
L123 million ($496 million dollars).
Although inflation in the 1940s was
high, it does not account for the
full increase in national income
between 1939 and 1944. Given the
prevailing real interest rate at
the time (4 percent), it is legitimate
to claim that the total wealth in
Palestine in 1944 was around L3.075
billion ($12.4 billion). The Palestinian
share of this wealth was roughly
51.2 percent, given the estimate
of Palestinian net domestic product
of L63 million ($256 million) in
1944. This translates into L1.575
billion ($6.4 billion).
Since non-property income then constituted
about 50 percent of total income,
the value of "human capital" of the
refugees given that they represented
55 percent of the Arab population
of Palestine would be L433 million
(or $1.745 billion) in 1944 prices.
Indeed, this is a maximum figure,
because part of the human wealth
was carried with the refugees. A
good part of it was also lost because
of the disappearance of complementary
inputs. Most of the refugees were
engaged in farming, so when they
were deprived of their land, their
human capital was lost. Refugees
who were not farmers lost their value
as labor through unemployment. They
were confined to camps by the sheer
economic force of being excess labor
in labor-saturated economies.
Since prices and quantities in 1948
were higher than in 1944, an upward
adjustment of the 1944 figures is
needed. If real growth is 4 percent
per year-a modest figure in historical
perspective-and if prices are assumed
to rise at the modest inflation rate
of the United States, the refugees'
loss in human wealth at 2000 prices
would total $102 billion. If these
losses are adjusted for inflation
only, they total $13.2 billion. An
alternative accounting method considering
the full range of assets at their
1944-1948 market values estimates
full compensation for Palestinian
material losses at $743 million ($2.994
billion) in 1948 prices. In 2000
prices (adjusting for inflation between
1948 and 2000) they total $22.5 billion.
The inclusion of human capital losses
raises compensation to $35.7 billion.
If a modest real rate of growth of
4 percent is included, these numbers
rise to $173 billion and $275 billion,
respectively. Indeed, the inclusion
of compensation for psychological
damage and pain, following German
compensation schemes, would raise
this total to $327 billion.
Payment Schemes : Designing
a fair and affordable compensation
regime that refugees may be willing
to accept and funders willing to
pay is not a simple matter. The most
difficult issues are the following:
(1) Equity-Should all refugees receive
the same amount? (2) Universality-Should
all refugees be compensated? (3)
Sustainability-Should refugees receive
a lump sum in cash or shares in an
investment fund? (4) Host-country
concerns-Should payments to refugees
be invested in the host country where
they are welcomed and where they
choose to stay?
Different compensation regimes will
emerge depending on the answers to
these questions. There are two equity
perspectives: horizontal equity stipulates
that people in the same situation
should receive similar treatment,
but vertical equity stipulates that
people in different circumstances
be treated differently. The per capita
compensation approach provides refugees
with a wide degree of flexibility,
is easy to administer, requires little
documentation, and militates against
the undesirable consequences of re-creating
the property and gender inequities
of the past. Alternatively, it may
not take full account of the dynamic
circumstances that different people
face. Compensating a single-parent
family in the same manner as a two-parent
family is perhaps not equitable.
Moreover, Palestinian refugees in
Lebanon have typically faced different
circumstances, constraints, and costs
than those in Jordan, Syria, and
the West Bank and Gaza and thus feel
they should be compensated differently
than their counterparts in these
areas. While per capita payments
can be adjusted to take differences
into account, it is also possible
to preserve the principle that all
Palestinian refugees suffered equally
the pains of separation from their
homes and land, so compensation must
be universal and include all of them.
Also, separating compensation packages
from property and physical claims
liberates these claims from being
contested by counterclaims for which
the refugees bear no responsibility.
Who will be compensated? The universality
principle suggests that all should
be compensated for the standard pains
of losing their homeland, even when
they appear that they do not need
it. Otherwise, pitting the interest
of those to be compensated against
those who will not receive compensation
will create tension and diminish
the acceptability and efficacy of
the program. There is considerable
evidence that universal programs
(e.g., Canadian medical insurance)
create a sense of common ownership
and buy-ins for society at large.
This explains perhaps the tenacity
with which different people hold
to these programs even when some
of them appear not to need them and
can easily do without them.
How should compensation be paid?
While Israel is fully responsible
for the restitution of the property
of the refugees and for compensating
them for all their material losses
and psychological pain, it is practical
and highly likely that other parties
may be willing to pay or help in
raising funds for compensation. A
lump sum cash payment for each refugee
may be the easiest and cheapest way
to administer the program. Yet there
are serious concerns about the sustainability
of such programs and the possibility
that payments will be wasted or quickly
consumed. Privatization programs
in many transition economies have
shown that the establishment of investment
funds to oversee the management of
these payments may generate the income
flows targeted by the compensation
regime. Equally important is the
fact that these investment funds
can be organized to invest the compensation
monies in Palestine and host countries,
whose interest in cooperating or
accommodating the refugees' choices
may be raised by the investment of
these funds in the countries' economies.
An ideal compensation package is
not a reasonable expectation and
compromises must be made. Nonetheless,
the more equitable, universal, and
sustainable a program is, the more
durable and acceptable it is likely
to be.
Atif A. Kubursi is
Professor of Economics at McMaster
University. The above text may be
used without permission but with
proper attribution to the author
and to the Center for Policy Analysis
on Palestine. This Information Brief
does not necessarily reflect the
views of the Center for Policy Analysis
on Palestine or The Jerusalem Fund. |