A Confederation of New Canaan
A confederation is a realistic and just solution to the conflict between Israel and Palestine.
April 5, 2015
Fred Foldvary, Ph.D.

The proposal for a “two state” solution to the Palestinian-Israeli conflict has failed. The Israelis reject it because they want to keep their investment in West-Bank settlements, and they fear that a completely independent Palestinian state would become a launching pad for an attack against Israel. But many Palestinians reject anything less than the full evacuation of the Israeli settlements, as happened in Gaza, and full sovereignty for a Palestinian state that includes all of East Jerusalem.

A “one state” solution is rejected by most Israelis, as the greater population of non-Jewish Arabs would wreck the Jewish self-determination that is the purpose of the State of Israel. The ideal would be a “no state” solution of peaceful voluntary governance, but that is not realistic.

This Land is Mine

The logical resolution to the conflict is a “three state” solution: Palestine, Israel, and a confederate government.

Therefore the logical resolution to the conflict is a “three state” solution: Palestine, Israel, and a confederate government. Palestine would become a member of the United Nations and other international organizations, and Palestine could join the Arab League. But foreign countries would be asked to maintain embassies to the Confederation.

The idea of a confederation has been proposed multiple times, and there is an organization promoting it: IPC, the “Israeli Palestinian Confederation,” which has written a Constitution of the Israeli Palestinian Confederation. Yet this idea has not penetrated the official negotiations, and has had relatively little discussion in the media.

The IPC has created a governance structure, but has deliberately left out policy contents such as the public finances and the division of the land. It is now time to create a peace plan with justice, which would then be offered to the parties as a contract to accept or reject.

The pre-1967 boundaries of Israel have achieved international recognition, and pragmatically should be accepted as the national boundaries of Israel and Palestine. But the forcible removal of people because of their ethnicity or religion has to stop. The just solution is leaseholds. The Israeli settlements would become leaseholds of the Palestinian state. The governments of the Israeli communities would pay the market land rent of their leased land. The rent would be collected by the Confederate government and passed on to the government of Palestine. Thus Israelis would be able to live in the ancient lands of Judea and Samaria, but at a price. Probably some of the settlers would move to Israel, as they would no longer be subsidized.

To avoid continuing conflict, Israel and Palestine would agree to bury past grievances, not to forget them, but to not let them dominate and ruin future relationships.

One problem with a two-state solution is that it would again divide Jerusalem. The Confederation proposal would let East Jerusalem be the capital of Palestine, but would copy the confederate concept to the city as well. There would be an Israeli administration of West Jerusalem, a Palestinian administration of East Jerusalem, and a confederate government for all Jerusalem. The administrations of West and East Jerusalem would not necessarily be along the 1967 boundary, but could incorporate current residency and also put the Old City under the Confederate government.

To assure security for the Israelis, the Palestinian government would not have a military. It has no need for armed forces, as no Arab state will attack it. The Confederation would have a police force, and over time, as trust is developed, some of the military capacity of Israel would be transferred to the Confederate government, whose troops would be volunteers.

The two parts of Palestine would be West Palestine (Gaza) and East Palestine (the West Bank). The Confederation would solve the problem of connecting West and East Palestine. With peace, the checkpoints would be eliminated, and the routes from West to East Palestine would be managed by the Confederate government.

If the Palestinians seek economic growth, they would be wise to eliminate the economically punitive taxes they now have, and implement a prosperity tax shift. Palestine would replace the value-added tax and import duties with a tax on land value. The Israeli settlers would already be paying rent to Palestine, and the payment of ground rent would be extended to all the lands of Palestine. The Palestinians would no longer be dependent on Israel for government revenues.

The Palestinian refugees and residents would have a limited ability to move to Israel, but the returnees would have Palestinian citizenship. The other refugees would be granted compensation, and the Arab countries in which they reside would grant them citizenship in those countries.

The Golan Heights would remain under Israeli jurisdiction, as any negotiations with Syria would have to await the end of the wars and the establishment of democracy in Syria.

What needs to be done now is to break through the two-state slogan, to create global publicity for a confederation.

Conflict in Israel and Palestine

The United States should propose the Confederate solution. If it is rejected by the government of Israel, the USA should stop its governmental aid to Israel and promote Palestinian membership in the UN. If the Palestinian authority rejects the Confederation, the US would require new elections in both Gaza and the West Bank, and acceptance of confederation, to continue US aid. The US and Europe would put financial pressure for the acceptance of the just solution.

What needs to be done now is to break through the two-state slogan, to create global publicity for a confederation. The IPC has been attempting it, but the confederate idea will have more substance and more acceptance when it includes a solution to the land question.

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Fred Foldvary, Ph.D.

FRED E. FOLDVARY, Ph.D., (May 11, 1946 — June 5, 2021) was an economist who wrote weekly editorials for Progress.org since 1997. Foldvary’s commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research included public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.