09 August 2005

Israel Peace Bonds: give greed a chance

This is an unpublished article outlining the application of the Social Policy Bond principle to the Arab-Israeli conflict

Israel Peace Bonds: give greed a chance

Or to put it more politely: ‘give financial self-interest a chance’. Why? Because the idealists and ideologues, the politicians, the generals, and the men of religion have failed tragically to end the violence in the Middle East. Perhaps it’s time now to bypass the usual suspects and contract out the achievement of peace to the private sector.

It’s largely a matter of focus: we don’t have to be as ruthless as the terrorists, but we do have to be as focussed on what is presumably our ultimate goal: peace in the Middle East. We need to go beyond the slogans, beyond history and even beyond the different sides’ views on truth and justice. We need to reward the successful achievement of peace, rather than activities that are supposedly aimed at achieving it—activities that are often counterproductive, unethical or disturbingly violent themselves.

There are too many people with a vested interest in continuing the conflict between Israelis and Palestinians. Many people, all over the world, and certainly most Israelis and Palestinians, would like nothing more than to see an end to the violence in the region. But there are many in positions of power or influence who are half-hearted about peace; others who feel threatened by it, and others who, for whatever reason, actively promote violence.

Ideally, then, we need a way of promoting peace that can modify or circumvent these people’s uncooperative or obstructive behaviour. We need to mobilise the interests of the far greater number of people who want peace. We need to find a way that can co-opt or subsidise those people in positions of authority and power who want to help, and at the same time bypass, distract, or otherwise undermine, those opposed to our goal.

Ideally too, we would use market forces. Markets are the most efficient means yet discovered of allocating society’s scarce resources, but many believe that market forces inevitably conflict with social goals: accentuating extremes of wealth and poverty, for example, or accelerating the degradation of the environment. So it is important to remind ourselves that market forces can serve public, as well as private, goals. Israel Peace Bonds are a new way of channelling the market’s incentives and efficiencies into what must be one of the most sought after objectives by most Israelis, Jews and Palestinians wherever they are: ending the violence between Palestinians and Israelis.

Unlike current funding programmes, which reward activities, organisations or individuals, Israel Peace Bonds would reward only the targeted outcome: peace in Israel. And unlike policies run by governments or inter-governmental organisations, they would encourage diverse, responsive and cost-effective projects.

My suggestion is that interested individuals and organisations collectively back Israel Peace Bonds. They would launch the bonds by making deposits into an escrow account. Then they would issue the bonds, which would be sold by auction, and redeemed for a fixed sum only when the number of Israeli citizenqqqqqs or Jewish visitors killed by terrorism in Israel reached a very low level.

Unlike normal bonds, Israel Peace Bonds would not bear interest and their redemption date would be uncertain. Bondholders would gain most by ensuring that peace is achieved quickly. Importantly, the bonds would make no assumptions as to how to bring about greater peace—that would be left to bondholders.

Once issued, the bonds will be freely tradeable on the free market. As the level of violence fell, so the bond price would rise. Bondholders would have incentives to cooperate with each other to do what they can to achieve peace, then to sell their bonds at a higher price.

The issuers of the bonds would decide only on the definition of peace to be targeted—not on how to achieve it. That would be left up to investors in the bonds, who have every incentive to maximise the reduction in violence per unit outlay. So, in contrast to the current fossilised, counterproductive approach, an Israel Peace Bond regime would stimulate research into finding ever more cost-effective ways of achieving peace. All initiatives would have a chance: not just those thought up or approved of by a limited number of politicians.

Investors in Israel Peace Bonds would be in a better position than governments to undertake a wider range of peace-building initiatives. They might, for example, finance sports matches between opposing sides, promote anti-war programmes on TV, set up exchange schemes for students of the opposing sides. They might even subsidise intermarriage between members of the opposing communities, or try to influence the financial supporters of conflict outside the region to redirect their funding into more positive ways. They could offer the Palestinians and the citizens of neighbouring Arab countries different forms of aid, including education and scientific aid, and measures aimed at enlightening Arab citizens. All these measures would be a cause of suspicion and mistrust if undertaken by governments. But when done by private sector bodies that either hold Israel Peace Bonds themselves, or are financed by bondholders, the motivation for them would be clear: they would be a commercial undertaking, with no hidden agenda other than to bring about peace, as defined by the bonds’ redemption terms.
Bondholders could lobby, or work with, the Israeli and Arab governments to, say, give a higher priority to peace studies in schools, but they could also develop peace-teaching projects of their own. While immediate peace might not result, much more could be done to enhance the prospect of peace in the future. Bondholders could, for instance, make strenuous efforts in Israel and the neighbouring countries to have some mixed classes of Jewish and Palestinian children at kindergarten and school. Both groups could be given the chance of spending time with each other. At the very least, bondholders might think, there should be opportunities for the younger people from both sides of the conflict to meet, discuss, argue and form friendships.

Some powerful people in governments, religious institutions or militant organisations would resent the targeting of such objectives by external agencies in this way. But, while under the current system they can oppose peace in ways that attract support, under a Peace Bond regime, they would have to openly declare their opposition to peace itself. It is precisely this focus on the outcome of peace—rather than activities or institutions—that would help strengthen the coalition working to achieve it.

Too many small bondholders could probably do little to build peace. The bonds would most probably end up in the hands of a few large holders, who would have incentives to co-operate with each other, and to finance those projects that they believed would be most effective in reducing the level of conflict.

By appealing to people’s self-interest, Israel Peace Bonds are likely to be more effective than conventional efforts aimed at reducing violence. In channelling market forces into the achievement of this objective the bonds could bypass or even co-opt the corrupt or malicious people in government or elsewhere who stand in the way of peace.

In today’s emotional climate decision-making is too often reactive. It is too easily swayed by those with a propensity for violence or those who benefit from it, whether financially or emotionally. Governments can evade or deflect censure on grounds of communal affiliation or patriotism, because the adverse effects of their policies are difficult to relate to their cause. Israel Peace Bonds would focus on an identifiable outcome and channel market efficiencies into exploring the ways of achieving it. They could be the most effective means of achieving the peace that the people of the Middle East yearn for and deserve.

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