Middle East peace: What would an Israeli entrepreneur do?

Erel Margalit, a leading Israeli venture capitalist, believes the moribund Israeli-Palestinian peace process could benefit from a bit of the high-tech industry's innovative outlook.

With yesterday’s announcement of early elections in Israel, many are saying that no one but Prime Minister Benjamin Netanyahu has a real vision for the country.

Those who know Erel Margalit may beg to differ.

Mr. Margalit is not in politics – yet. But as one of Israel’s most successful venture capitalists with a bent toward social entrepreneurship, he has not been shy about admitting his desire to effect broader change by jumping into the political fray.

“Politics in Israel today is a stagnant business,” he says, contrasting it with the kind of innovation that has made Israel’s high-tech industry second only to Silicon Valley. “We need to take that level of innovation, daring, initiative, and working as a group into the political realm.”

Renovating the region

When visitors enter the headquarters of Margalit’s Jerusalem Venture Partners, they do not see Picassos or ancient Middle Eastern art.

Rather, there is a large picture of a derelict building that seems like it would be appealing only to stray cats. It bears no resemblance to the sleek, modern center it has become.

But Margalit had a vision for the derelict compound, which overlooks Jerusalem’s Old City walls. Today, it is home not only to his venture capital group but also to many of Israel’s most promising start-up companies, which each spend 18 months under the careful eye of Margalit and his team.

No one took him seriously when he proposed transforming the abandoned money-printing plant into a high-tech incubator, he says; he had to hire people to draw pictures of his proposed overhaul, which today boasts winding brick paths lined with vibrant flower beds.

“Right now, the Middle East looks like this [run-down building],” he says. “But that doesn’t mean it can’t have some renovation.”

Harnessing Jerusalem's energy

While many people see Jerusalem as one of the most intractable issues of the Israeli-Palestinian conflict, with two peoples competing for a foothold in a city they both consider holy, Margalit sees that as an incredible asset.

That’s just one of the ways that he redefines the problem that needs to be solved, which opens the way for different solutions.

Unlike many Israeli entrepreneurs and businessmen, he eschewed Tel Aviv, with its trendy cafes and hub of high-tech firms, for the location of his company. Jerusalem, with its rich history and special place in the heart of Jews, Christians, and Muslims, holds far more creative potential – and thus could become the most dynamic city in the Middle East, he says.

“This is the place where three civilizations meet. That cultural bond could be the fertile land for innovation, creativity…. It’s something that you couldn’t even invent,” he says. “The storms of change occur where there are differences ... you need to tap into this – there is a lot of energy there.”

Palestinian role

He sees Israel’s 20-percent Arab population and Palestinians next door as playing a key role in helping Israel to do that.

What politics and diplomacy have failed to do for improving Israel’s relations with its neighbors, entrepreneurial economics could help to accomplish.

While Israeli companies have long targeted international markets, they have hardly tapped into Middle Eastern markets. Palestinians and Israeli Arabs, with their language skills and cultural background, are the key to helping Israel do this, says Margalit.

“Israelis don’t have direct access to the markets without Palestinians,” he says.

It goes without saying that such a partnership would also benefit the Palestinian economy, which is heavily dependent on foreign aid and needs a better model if it’s going to become a sustainable state.

“Palestinians need their Marshall Plan,” says Margalit. “And Israel needs a Marshall Plan by way of free-trade zones in the Middle East.”

The 2002 Saudi peace initiative, for example – which proposed a Palestinian state along 1967 borders and got the backing of the Arab League – could have an economic component that makes peace more about future prosperity than historical concessions.

“Most people, when they think of solving the Israeli-Palestinian conflict, they think of lose-lose, not win-win,” says Margalit, who in the next few weeks is hosting two separate entrepreneurial weekends for Palestinians and Israeli Arabs. “There’s no vision of what we can gain as an economic region.”

He acknowledges that such a transformation can’t come overnight, pointing out dryly that “we don’t have Canada as a neighbor.” But an entrepreneurial attitude could do much to help break the mental stalemate that has too often characterized efforts to address the Arab-Israeli conflict, he says.

“Israel should approach every problem [in the region] as a strong, proactive country, not as a victim,” says Margalit. “When you victimize your position, coming with constructive solutions becomes impossible. This should be said to Palestinians, too.”