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EconOptimisim

Make Money, Not War

Humanitarians and politicians have spent decades and careers in attempts to end the conflict between Israel and Palestine.  The growing business between the two nations, particularly with Palestine supplying outsourcing services to Israel, has motivated some to suggest that peace may shortly follow.

It is correct to note that business between the two implies cooperation. Two parties, whether in Ramallah or on Wall Street will sign a contract if and only if both expect to receive a benefit, such as greater profit. A firm can increase its profit through lowering costs ( with outsourcing) or increasing revenue (with new business).

The violence and threat of violence between the two nations makes an outsourcing contract  a greater risk than two comparable firms elsewhere.  Both parties must account for risk: that business won’t exist the next day; that either authority will change the law and impose new regulations; that meeting on neutral ground will become too expensive or dangerous.

Managing risk adds a cost to business, which is the equivalent of a tax.  Taxes then decrease the potential profit and the amount of business likely to occur.  It seems unlikely that any government would explicitly tax a sector as popular and promising as technology, but current policy effectively does just that.  That business occurs despite such costs suggests that potential profit must be higher than the substantial costs politicians impose.

All contracts account for the risk that other side will not deliver, called counter-party risk.  Writing a contract implies that both anticipate low risk , otherwise the contract is worthless.  Given the political rhetoric and historical animosity, the counter-party risk should be huge: intentionally violating a contract is just a less messy way to bomb a business.

Yet, partnerships have developed and at the very least conducting business meetings suggests that neither side believes the other has a lethal intent.  More likely, they know that the mutual benefit of  business provides low risk of harm – either physical or financial.  And more business partnerships provide a history of trust, which makes a welcome alternative to a history of attacks.

Already, business in the area seems incredibly promising.  This summer saw the first annual Start-Up Weekend Tel Aviv with 130 Israelis and 30 Palestinians.  In June the United States pledged $455 million to Middle East based private equity firms and David Cameron recently announced that his government will support a tech-envoy in Israel.  Since establishment in 2008, business leaders meet regularly at the Israeli-Palestinian Chamber of Commerce and Industry to “create stable and mutually beneficial relations…and a means to peaceful relations.”

Such positive business indicators unfortunately do not necessarily imply a future of peace.  While the business landscape may be vast and rich in mutual benefit, the actual land in question is fixed in a zero-sum game.  If sovereignty mattered only to politicians then peace would come swiftly: the people would elect leaders who advocate for greater business.

Many people, not just politicians care about land control.  Consider that both sides insist on their own statehood and on the other’s non-statehood.  Or the brief November battle and the IDF’s social media campaign where citizens, not politicians, retweeted grisly photos and inflammatory tweets.  As long as enough people ignore business benefit in favor of isolated national interest, profit can only provide piecemeal peace.

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