Econ 101

06.24.13

Israelis and Palestinians: Getting Down To Business

“We come from the field, and we’re feeling the pressure; if we don’t make progress toward a two-state solution, there will be negative developments for the Israeli economy. We’re already noticing initial signs of this. The future of the Israeli economy will be in danger.” This, reportedly, is the message delivered last month to Prime Minister Netanyahu by a member of a group of prominent businesspeople, just before they met, on May 26, with Palestinian counterparts in Jordan under the auspices of the World Economic Forum.

The group, organized and led by legendary high tech investor, Yossi Vardi, and Veritas and Sadara general partner, Yadin Kaufman, also included Shlomi Fogel, the owner of Ampa, Ruth Cheshin, from Teva’s board of directors, Shmuel Meitar, a founder of Amdocs, Benny Landa, a founder of Indigo, and Rami Levi, owner of supermarkets and a cell phone company (and probably Israel's largest employer of Jerusalem Palestinians).

The message is disquieting; the messengers are the ones we've been waiting for. As I argued in The Hebrew Republic, the spine of any successful peace movement has to be Israel's businesspeople, concerned about global isolation, not (or not only) Israel's liberal intelligentsia, concerned about the corruption of democracy. For ordinary Israelis, but especially young people, the only compelling rival to the claims of Greater Israel, which by now seem second nature, are the claims of Global Israel, which are learned at first hand.

Those latter claims are, or should be, threefold: the opportunity cost of conflict, the dangers to high tech of isolation, and the novel facts of new, networked economies—in short, a political economic vision. The businesspersons' group seems willing to advocate for the first two. About the third, let us just say we need more work.

First, the opportunity cost of the conflict, which is not widely appreciated. Indeed, many foolishly claim that the Israeli economy is not only unharmed by the occupation but may actually gain from it. Some on the right—including Prime Minister Netanyahu, reinforced by sympathetic polemics like Start-up Nation—claim that Israel’s war economy, heavy on high-tech military organization and R&D, engenders technologies that seed the country’s lively start-up culture. Others, especially on the left, assume that Israel’s consumer and telecom corporations are happy to have a captive market of an additional three million consumers.

Most, in short, look at Israel’s fairly steady rates of growth and compare those rates to the OECD average. They understand that the country’s current austerity crisis and high, chronic inequality are burdensome. Yet they refuse to believe that peace would make much difference.

What both sides fail to understand—something Rami Levi no doubt understands—is that Israelis who are not in the start-up world are paying a heavy material price for this conflict, since Israel is not growing nearly as fast as it could have been, especially in food processing and retail, tourism, and construction—the medium tech industries that would be partners for short-term Palestinian economic growth if the occupation were lifted and investment from Jordan and the Gulf would pour in. The OECD average, in this sense, is almost entirely irrelevant to what Israel is, namely, a large, technologically advanced urban hub—a kind of city-state—networked to the global system on the one hand, and to Palestine on the other.

Israel's growth rate, as Stanley Fischer has insisted, is actually not nearly as fast as it could be, or enough to outpace the social tensions prompted by persistent inequalities, between Israeli Jews and Arabs, especially. Fischer, departing the Bank of Israel, added his voice to the business delegation, calling for seriousness about peace. No, compare Israel's growth to some average of Singapore, Pittsburgh, Boston, and Berlin, not to some average of Ireland, France, and Greece. (Stay tuned: a project I'm co-leading at Dartmouth is planning to do just this.)

But, then, what of high tech? Is it not true that high defense spending, and the defense posture generally, is good for technology businesses? This brings us to the second point, the dangers of isolation. To some extent, of course, high defense spending, the team-based problem-solving of the IDF, the 8200 intelligence unit, etc., seed new technologies.

But for the most part, technology businesses have to build relationships with global customers: they have to become solutions companies for problems defined by the product development plans of global technology and medical corporations. And unless Israelis sell apps, software packages, components, or devices that are so exotic, powerful and unique that nobody else can supply them, global corporations will increasingly shun Israeli start-ups the way Spanish crowds shun visiting Israeli basketball teams. Already, Indians and Indian companies are proving far more important to Silicon Valley than Israel.

Third, and perhaps most important, Israeli business leaders—the natural leaders of Global Israel—understand the nature of the new economy, which young Israelis experience but can't necessarily find the words for whenever they fly from Ben Gurion Airport or flip on one of their three or four screens. Israel's business leaders, in other words, have the moral responsibility to define what a two-state peace must really look like, given the indispensability of economic growth to both states, and the new drivers of growth which businesspeople perceive more clearly than old school officials, politicians and journalists. Are they exercising it?

Alas, on this point Vardi et al have been reticent, not just "so far," but in the way they've crafted their mandate. They have defined themselves merely as a "pressure group," to highlight the importance of a two-state solution, but not a group to describe what a solution might actually look like. Vision, they say, is the job of the political leadership. Really?

On the contrary, high tech and other business leaders need, urgently, to spell out the political implications of the world they live in and embody. They must advocate for the very thing their photo ops in Amman implied, infrastructural integration and political interdependence. I have argued here before that security must be re-envisioned in terms of the new urban "fragility." Similarly, the peace process has become a great bore because political leaders have failed to acknowledge that two states in 2013 cannot look like the states of 1948, when the area was sparsely populated with agricultural villages and collectives, and rivalries erupted over hilltops.

Only the business leaders Vardi's assembled have the moral prestige to sketch out this vision and take it mainstream. As long as young Israelis fail to envision a plausible peace, they will fail to embrace the steps necessary to move to it, including demanding an end to the settlement project.

Israel and Palestine—it cannot be stressed enough—exist in a globalized, networked, densely populated, urbanized land. Negotiations over two states must anticipate moves toward greater integration—hence, confederated arrangements—both to mitigate the fears each side has of the other’s “self-determination” and provide a framework for each economy to grow.

The jurisdictions these states would exercise would encompass much more than police, education, civil law, and cultural affairs—what the Palestinian Authority has hypothetically exercised under the Oslo Agreement. Rather, these jurisdictions also would cover water and sewage, bandwidth and telecom, health delivery and control of epidemics, labor law, certification and integration of tourist services, banking and currency controls, roads and bridges, railways, construction standards, and technical university certification.

Vardi and his group should be arguing for this vision, two nations, but one urban infrastructure; for shared, or confederative, jurisdictions to help Israel and Palestine work cooperatively and grow reciprocally, just as their joint conference implies. (One member of the Vardi group told me off-the-record that there is a kind of consensus to support the plan former Prime Minister of Israel Ehud Olmert and Palestinian Authority President Mahmoud Abbas advanced: a cooperative security arrangement, a cooperative custodian for the old city of Jerusalem, two capitals but one municipality, an international commission to oversee Palestinian compensation for confiscated property, etc. All of these plans presuppose confederative solutions of one kind or another.)

The point is, only businesspeople on both sides can argue with the necessary authority for such new styles of cooperation, which are inexorable, that is, if we are to avoid violence and war. Vardi, an admirer of McLuhan, often tells us that the medium is the message. In this case, however, the messenger is the medium. Just say what you are and how you work.