Can business links lead to peace between Israelis and Palestinians?

The following article with video appears in the March 12 Yale Insights:

While diplomats are the ones who sign peace deals, Yale’s Ian Shapiro sees businesses as critical to creating the pre-conditions for progress in difficult, high-conflict contexts. He told Yale Insights about the businesses making connections between Israel and the West Bank.

Israel has controlled Palestinian territories, including the West Bank and Gaza, since the Six-Day War in 1967. The roots of the conflict date even further back, to the founding of Israel and to the emergence of the Zionist and Arab nationalist movements in the 19th century. Few have seen hope for a near-term political or diplomatic resolution since the collapse of the peace process of the 1990s. In 2018, the UN’s special rapporteur on human rights in the Occupied Palestinian Territory described the situation as “the bleakest period yet.” 

Despite the political impasse, there are businesses making connections between Israelis and Palestinians. Rawabi is a billion-dollar development planned and built by Palestinian in the West Bank and aimed at fostering a tech industry. Collaboration with Israelis is helping Palestinian software engineers get real-world experience through internships as well as funding for startups.

While no one is claiming any given cross-border effort will deliver peace, the examples of Northern Ireland, South Africa, and Colombia do suggest that the economic development that comes with collaborative commercial activity can free up room for political solutions.

Yale’s Ian Shapiro, Sterling Professor of Political Science, professor of management, and Henry R. Luce Director of the MacMillan Center for International and Area Studies, has developed a series of case studies looking at the role of business leaders in creating the pre-conditions for positive change. He teaches his new case on Israel and Palestine in the Yale SOM core course State and Society. 

Q: You have developed a new case study on Israel and Palestine that is being used in State and Society, one of Yale SOM’s core MBA courses. Could you explain the case?

With the State and Society course we look at business-government relations in ways that are likely to be relevant to future managers. We teach this case on Israel and Palestine and a case on South Africa’s transition in the 1990s as examples of business having a constructive social impact in very difficult, high-conflict political contexts. 

For the Israel-Palestine case, we looked at five ventures, all of which involve cooperation between Palestinians and Israelis. They’re models of what can be done. Some are bigger, some are smaller but scalable. 

The case came about because I was interested in a group called BTI, Breaking the Impasse, which was made up of Israeli and Palestinian business leaders attempting to mediate between the politicians on both sides. 

It was initially notable mainly as a failure. It formed in 2012 at the World Economic Forum then more or less fell apart after Israel’s incursion into Gaza in 2014 and the resurgence of the Israeli right in elections the following year. 

I decided to see what those business leaders had tried next. A number of them became involved in ventures that attempt to transform the economy in ways that would be propitious for integrating Israelis and Palestinians in an era where there’s no prospect for a real political settlement.

Q: Conventional wisdom says a political settlement between Israel and the Palestinians needs to precede economic links. Is that right? 

Northern Ireland was chronically conflicted for decades. What produced a thaw? People focus on how Tony Blair was different from Margaret Thatcher, but a big part of it, I think, was the huge economic success of Ireland. That made the possibility of reunification look less threatening to Protestants in the north. 

For Israel and Palestine, the political stalemate is not likely to change, but in the meantime, life goes on and other things do change. The five ventures in the case have all been attacked by both the right wing in Israel and left-wing boycott-Israel groups. All five get criticized for normalizing the status quo, but I think they are trying to change the status quo in ways that will loosen up the political rigidities. These business leaders are working from the premise that if the economy can get substantially better, different political forces will emerge. 

You don’t have to spend much time in the West Bank before you realize that the probability that Israel is going to give up control of the West Bank is about the same as the U.S. federal government giving North Dakota to the Sioux Indians. It is so far from a feasible reality that people who are trying to have a constructive impact need to look at other dimensions of the problem because attacking the political situation head-on is hopeless.

Q: What’s an example of the ventures covered in the case?

Rawabi is a special economic zone in the West Bank for high-tech startups. It’s a billion-dollar venture that confounds a lot of stereotypes. Most people, when they think about Palestinian employees, think building laborers. In fact, there are 2,500 software engineers a year graduating from Palestinian universities.

In conjunction with that, Yadin Kaufmann, an Israeli tech magnate, has created something called the Palestinian Internship Program. It arranges internships for Palestinians at Israeli tech firms. Then they then go back and start companies. Kaufmann is also putting together a venture capital fund which funds these Palestinian startups. 

Q: SodaStream is also one of the examples.

SodaStream is very interesting because the original idea was to create employment for Palestinians in the West Bank. It immediately got attacked. The BDS [Boycott, Divestment, and Sanctions] movement aims to use activism to get Israel to withdraw from the occupied territories. It was really aimed at pressuring business tied to the Jewish settlements in the West Bank, not at ventures like this, but SodaStream was attacked. 

At the same time, the Jewish settlers don’t like SodaStream either, any more than they like Rawabi. So with pressure from both sides, SodaStream moved back into Israel.

It’s one of very few ventures in which you have Palestinian managers supervising Israeli line workers. There are even now Bedouin managers in supervisory roles. It’s a kind of microcosm of cooperative production in the Middle East, and of course extremely successful. It’s just been bought out for billions. It’s sort of a demonstration project of the possibilities that can actually occur.

Q: How do the situations in Gaza and the West Bank compare? 

The West Bank and Gaza used to be fairly similar. But because of economic activity in the West Bank, the per capita income is now many multiples of Gaza, and in fact, will soon overtake Jordan’s per capita income. 

The far right-wing Israeli settlers would really like the Palestinians to go to Jordan, so they don’t want a thriving Palestinian economy. They’re worried that far from Palestinians going to Jordan, Jordanians might start coming into the West Bank.

There is a huge water crisis in Gaza. It’s a horror show. One of the projects that we look at in this case is a nonprofit jointly run by Jordanians, Palestinians, and Israelis called EcoPeace.

There isn’t enough drinking water, let alone water to process sewage. That means they’re pumping sewage into the Mediterranean, which is drifting up into Israel’s desalination plants, forcing them to keep shutting down. 

EcoPeace has designed and is now raising private-sector capital for an arrangement whereby solar energy will be produced in Jordan. The electricity will be sold cheaply to Israel and provide the power to run the sewage plants in Gaza, which will curtail the problem that Israel is facing.

The environment is forcing some economic cooperation. But Gaza’s water problem is so extreme that it will become uninhabitable in the next couple years. There are two million people there, so it’s a crisis on the verge of becoming even more explosive than it is now.

Q: You mentioned the BDS movement, which would like to isolate Israel economically with the idea that it would help spur peace. What is your take on that argument?

The conventional wisdom of modern economists is that sanctions don’t really work. In South Africa there were sanctions for years. But what happened was when Ford left, Toyota came in. When Kodak left, Agfa came in. The South African sanctions actually stimulated local capital formation and the development of local business.

Sometimes financial sanctions can help change politics if banks refuse to roll over debt, which they eventually did in South Africa. But all the empirical literature says industrial sanctions don’t have any effect. They’re symbolic, political statements by the sanctioners. 

If you look at the Israeli economy, it’s one of the most successful economies in the world. It was almost untouched by the financial crisis. If you go north of Tel Aviv to the big tech hubs, it looks like Silicon Valley. Twenty-five years ago, Herzliya was a sleepy beach town. Now it’s not just Israeli tech firms, it’s Microsoft, it’s you name it. Israel is so far from being a siege economy that I think in terms of BDS having an actual effect, it’s a pipe dream.

Q: Can collaborative economic activity of the sort the case looks at produce change in Israel and Palestine?

It’s much too early to say, but in 1988, the South African conflict looked just as hopeless as the Israel Palestine conflict does now. South Africa had a transition, five successful peaceful elections, and integrated the economy. 

In South Africa, one of the reasons there was no possibility of progress for so long was that the South African Communist Party and the African National Congress were literally the same people. Many white elites in the 1980s were terrified that if there was a transition, not only would they get majority rule, but they would get communism. 

With the collapse of the Soviet Union in the late 1980s, communism was off the table. As one South African business man put it, “I woke up one morning and realized we don’t have to be Cuba; we can be Brazil.”

Once people can perceive a different set of economic possibilities, these incredibly ossified conflicts can start to be seen in a different way. People will see possibilities that they would never have dreamed of before.