Open Zion

07.17.13

Business Is Personal: Why the EU's New Guidelines Could Hurt Israel's Economy

The European Commission's decision to condition Brussels’ future agreements with Israel on the recognition that East Jerusalem, the West Bank, and the Golan Heights are "occupied territories" is a major development, not because of what it does, but for what it dramatizes.

The new guidelines do not impinge on the free-trade agreement or other agreements governing cultural and sports exchanges. For now, Israeli football teams can still play in Barcelona (if they can stand the boos) and Hebrew University professors can still attend academic conferences in Paris.

Since the mid-2000s—a time when Ehud Olmert served as Minister of Industry, Trade and Labor—the EU has mandated that produce from the territories be marked as such. (Olmert had advised the government to go along with the EU mandate, earning him the hatred of Likud rank and file, which helped to precipitate the founding of Kadima). Right now, there are not many projects initiated from or individuals living in the territories that rely on, or even hope for, funding from granting agencies of the European Union.

But the specific strictures and precedents miss the point. Even if the guidelines do not apply to the actions of individual member states, it still sends them a clear signal: a boycott of people, projects, and companies from the settlements is, if not mandatory, then welcome. And given the difficulty of determining just where the boundaries are for Israeli people, projects, and companies, it would be understandable for questions relating to boycotts to be raised about all Israelis; and questions are enough to get in the way.

Commerce in technologically advanced countries is no longer an impersonal exchange of goods. Rather, it is the building of relationships. One does not have to boycott Israeli "products" to prejudice Israel's economy. Most value is created by scientific interchange, and it is enough for a European not to trust or just not want to hang out with Israelis to impact that exchange. It is enough to have a key member of a marketing or research team simply not wish to visit Israel for meetings.

Phillips or BMW products development teams can still strike deals with an Israeli components maker or software design house. But why would they if it means extra static? There are plenty of places in the world to get smart engineering.

Natan Linder, a former student, the founder of Samsung’s Israeli technology center—and now at MIT's Media Lab—once put it to me this way: “Israel’s real demographic problem is in India and China. What is their top ten percent—200 million people? Assume real geniuses are just one percent—that is 20 million people. [India and China] have four times more geniuses than we have people. So how does Israel survive in this scenario?" 

The point is that distinguishing yourself is hard enough.  You don't need to come up to the plate with a strike against you.

True, if Israelis come up with innovations that nobody else has—great GPS mapping, or new ways of treating diabetes, perhaps fewer questions will be asked. But the $40 billion a year "in trade" that Israel does with Europe represents tens of thousands of transactions that are, in the end, personal.

If before the head of a company's product development team (or the head of a university department, or technology institute, or medical trial team, or granting non-profit) takes a meeting with you, he or she automatically starts to wonder about where you live, or where your key people live, or what the key people on his or her team will say, you just get to be too much trouble for them. If Prime Minister Netanyahu insists on blurring the border with the territories, ordinary Europeans cannot be blamed for doing the same.

Is this enough to wreck Israel's economy? Not yet. But it is enough to make the difference between growing at 3.5 percent rather than 6 percent, or 7.2 percent unemployment rather than 6.5 percent. And that difference is enough to account for the difference between a budget surplus or a 40 billion NIS deficit, thus universities that are cutting rather than hiring, thus an innovation engine that revs down, and thus people like Linder staying in Boston rather than returning to Herzliya. As I said, personal.