Communication for Sustainable Development

Can Black Swans lead to a sustainable Arab-Israeli peace

The nationwide decline in housing prices that began in 2006 was supposed to be, we were told, impossible. Because its impact was limited initially to the sub-prime mortgage market, which was a relatively small part of the overall home-mortgage market, policy makers at the Department of the Treasury and the Federal Reserve assured us that its effects would be contained. That prediction, we now know, turned out to be horribly wrong.


So, too, the revolutions in Tunisia and Egypt were said to be impossible. Even after the shocking events of Tunisia, pundits were quick to deny their relevance to Egypt. 

Egypt was a much larger country; its population was less educated, less politically savvy, and too habitually passive to become revolutionary; moreover, Egypt's security service was much larger and tougher than those of Tunisia, and in any event the Egyptian military could be relied upon to come quickly to the aid of the regime in the event of any crisis. Indeed, some pundits were quick to dismiss Tunisians entirely from the Arab world.
In the wake of both crises, pundits reflecting the conventional wisdom deflected criticism by claiming that they should not be held responsible for their failure because "no one could have foreseen it," and that their mistakes were honest, but good faith, failures to take into account what is now popularly known as "the black swan" event.
In both the financial crisis and the current Arab "democratization crisis," however, the conventional wisdom's excuses were as erroneous as they were self-serving. The reality is that dissident voices, both in the financial world and among foreign policy and intelligence analysts, had sounded the alarm for some time that both systems were in profound disequilibrium. With the denouement of both crises, clear winners and losers emerged: Lehman Brothers entered bankruptcy while Bear Stearns, Merrill Lynch and Wachovia survived only because other banks took them over; other banks averted bankruptcy only as a result of massive government bailouts, e.g., Citigroup and Bank of America; some nervously hedged their bets and survived, bloodied, but intact, e.g., Goldman Sachs; and a precious few institutions profited mightily by risking their own capital and taking very unpopular bets, e.g., John Paulson, that later proved to be very profitable. 
Zain al-Abidin Ben Ali and Hosni Mubarak appear to be the first Lehman Brothers of the Arab world, but they may not be the last; the Jordanian monarch, King Abdallah, and the Algerian president, Abdalaziz Bouteflika, each face substantial risks that they may join Zain al-Abidin and Hosni Mubarak, sooner rather than later. The Paulson's of this revolutionary moment, however, are clearly the populations of Tunisia and Egypt, and to the extent they succeed, it is not unreasonable to believe that other Arab populations will make the same choices as the Tunisians and Egyptians.
The United States, however, at this stage, can only fantasize that it will emerge from this political crisis in the metaphorical position of Goldman Sachs. Its more likely outcome is that of Citigroup, alive but with an ever-diminishing market presence. If this analysis is correct, how did it end up that the United States put so much of its prestige in the stability of what, in hindsight, were clearly weak regimes? Part of the explanation is simply over-confidence: the natural consequence of its success over the past 35 years in which the Arab states had failed to mount any meaningful resistance to its policies. In the absence of any real costs arising out of US policies in the region, it was all too easy to dismiss dissenting views as that of latter-day Cassandras.
Other factors, however, are more sinister. Anti-Arab racism, rooted in contempt for Arab claims to self-determination, independence and dignity (see the Palestine Papers for shocking examples of US contempt for Palestinian claims) also prevented objective analysis of the risks inherent in US policies. The most important factor, however, was the US's failure to set out a foreign policy for the Arab world independent of Israel's. Israel, at least for so long as maximalist Zionism remains its foundational ideology, has no choice but to take the most extreme positions with respect to Arabs in order to justify its own policies, whether dismissing the moral significance of its ethnic cleansing of Palestinians as the necessary price for establishing a Jewish state, as Benny Morris, an Israeli historian has suggested, or its routine use of excessive force in the past to terrorize its neighbours and its continued threats to do so in the future. The US, however, has no comparable need to put all its foreign policy "eggs" in the anti-Arab basket. Indeed, unlike Israel, whose justification for its policies rests largely in the political failings of its neighbors, the US should have nothing to lose from increased democratization in the Arab world.
From this perspective, present US policies represent a poor risk-reward profile: the US does not benefit substantially from compliant Arab dictatorships relative to what it would gain from Arab democracies, but it does risk substantial losses to its interests if those dictatorships fall. Israel, on the other hand, reaps substantial rewards from Arab dictatorships allied with the US, a fact that gives Israel, perversely, very good reason to goad the US into adopting its own extreme views on Arabs.
But this hardly means that Israeli policies are rational. While the risks to the US from its short-sighted policies toward the Arab world clearly outweigh any benefits it receives, the failure of such policies ultimately will not endanger the US's future. For Israel, on the other hand, any number of "black swans" lurk over the horizon that could be catastrophic for Israel: the US could simply grow weary of constantly defending Israel, especially as the strategic burdens arising from this relationship become more and more obvious in a time of sustained fiscal crisis; Israel could lose the support of substantial numbers of the Democratic Party as a consequence of the American right's fanatic support for it; the revolutions in Tunisia and Egypt could succeed, leading to a new democratic age in the Arab world that would usher in an era of rapid economic growth and increased regional integration led in part by Turkey, with the result that the world could come to view Israel in the same manner it currently views Taiwan. 
The recent events in Tunisia and Egypt make clear that reliance on authoritarian regimes makes for foolish policy. At the same time, democratic Arab regimes, if anything, will be less likely than Arab dictatorships to accept the legitimacy of an Israeli state that refuses to make peace along the terms set forth in the 2002 Arab Peace initiative. From the US perspective, it is a self-defeating strategy to compel regimes to accept terms that are not democratically sustainable. This suggests that, sooner or later, US policy will change, just as sooner or later, it was inevitable that the Tunisians and Egyptians would overthrow their regimes. Israelis may, based solely on past experience, believe that US policy will never change, just like others believed that a nationwide decline in the price of residential real estate was impossible -- or that Tunisians or Egyptians could never successfully challenge, much less overthrow, their police states. Indeed, the probability of any of these "black swan" events may be exceedingly small, e.g., 1 percent. Bt a 1 percent risk, when combined with the catastrophic consequences that such events would entail for Israel, it is clear that a rational Israeli policy would also seek peace based only on terms that could be acceptable to democratic Arab states, not terms that it can impose based on superior power. Hopefully the United States, in the wake of Ben Ali's fall, and what appears to be Mubarak's imminent fall, can finally sustain enough of a defense of its own interests to pursue peace on terms that do not require police forces of client states. Tunisia and Egypt have demonstrated categorically that any peace which relies on the stability of police states is doomed from the outset.
Mohammad Fadel is the Canada Research Chair for the Law and Economics of Islamic Law and Assistant Professor at the University of Toronto Faculty of Law.

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