Foreign Policy published an article recently detailing Gaza’s literal underground economy. Goods come and go not over borders but under, through a great and growing number of tunnels stretching between the blockaded Gaza Strip and Egypt’s Sinai territory. The tunnel trade, with its informal and ungoverned nature, is Gaza’s economy. Once used to smuggle weapons, the tunnels are now used to transport everything from baby formula to automobiles.
Without basic property rights or a governing authority, tunnels proliferate, working conditions for tunnel diggers and operators decline, and competition begets violence. It costs upwards of $100,000 to build one of these underground trade routes, but would-be investors have little protection against fraud. In fact, Hamas estimates that nearly $100m has been lost investing in nonexistent tunnels. Hamas in turn has offered to protect those investors by partially reimbursing them for their losses.
In Gaza, some “70 percent of industrial establishments are closed, 20 percent are operating at 10 percent capacity, and only 10 percent are working at 20-50 percent capacity,” mainly due to the blockade enforced by Israel. In fact, the official unemployment rate is the highest in the world. Beyond these statistics and the politics surrounding the blockade, Gaza is simply marked by a distinct lack of formal commerce and trade. Arbitrary rule of law is the order of the day. One could say that Gaza dramatically illustrates the importance of having formal institutions that support and protect economic and political order.