Needed: More Startups, not States

Much has changed in the Middle East over the last twenty years. Israel’s economy has shifted to more open and less socialist, and average income is much higher. The Israeli government still controls much of the economy and subsidizes money-losing firms, but a vibrant tech sector is home for hundreds of innovative start-up firms.

Christopher Schroeder’s Startup Rising: The Entrepreneurial Revolution Remaking the Middle East gives a glimpse of what to expect as venture capital supports dozens, hundreds, then thousands of Middle East entrepreneurs from the Palestinian territories to Jordan, Lebanon, the UAE, Egypt and other countries in turmoil in between.

Imagine the Middle East with millions carrying hand-held computers. That’s not some distant utopian tech future but today in the Middle East. For the over 75 million people in Turkey, nearly 90% have cell phones. Other ME countries are shown below, and you can see the problem for Egypt. Cell phones network friends and relatives, speed business communication, and also allow access to news and information from the outside world.

The stories from Startup Rising paint an optimistic future for most of the Middle East. Israel already enjoys a dynamic tech sector, and now capital and expertise are surging through other Arab countries.

You can learn more about Startup Rising “looking inside” the book on Amazon. Plus online videos with Christopher Schroeder, the author, tell his story. Here is a Google for Entrepreneurs video from December, 2013. About five minutes in, this Economist article is mentioned with its focus on “Startup Spring” in the Middle East. Excerpt from The Economist:

The story sounds like a common one from Silicon Valley or Silicon Roundabout, London’s start-up district. But Ms Taher tells it in a café in Amman. She is just one of several hundred entrepreneurs, many of them women (see article), who have started online firms in Jordan’s capital in recent years, making it one of the Middle East’s leading start-up hubs. Even more surprising, such clusters (“ecosystems” in the lingo) have been popping up all over a region that is better known for armed conflict and political strife. Whether in Beirut, Cairo, Dubai, Riyadh or even Gaza City, small technology firms are multiplying, creating a sort of “start-up spring”. (Link to source.)

Here is a review of Schroeder’s book from the Stanford Social Innovation Review. Excerpt:

In 2001, when Save the Children wanted to launch a version of Junior Achievement in Jordan, they asked Salti to be country director of what they called “INJAZ Jordan,” or Jordan Achievement. Holding her freshly minted MBA from Northwestern, Salti accepted, eager to return home and make an impact. She later would found a regional INJAZ office to spread the model across fourteen countries in the Middle East. 

INJAZ was one of the earliest “private public partnerships,” as they are commonly called today. Salti and her mother started with a USAID grant that matched contributions from local businesses, and chose schools in conjunction with the Ministry of Education. Their goal was to hold additional classes at the end of each day to not only supplement education, but also to focus on job-related skills and to push kids to think about entrepreneurship and develop their own ideas. Their first volunteers were friends and family, and they soon began to recruit local business leaders and their staffs to mentor and train local youth in after-school programs.

Junior Achievement in Jordan also teaches entrepreneurship to young people. Junior Achievement Middle East and North Africa on their JA website.

Segment from a Milken Institute panel with Christopher Schroeder.

Instead of--or in addition to--advocating a two-state Israel/Palestine, U.S. policy could encourage technology entrepreneurs across the Middle East. The U.S. could promote reduced barriers to funding new enterprises and development and marketing their products. 

Better policies would encourage employment and boost technology firms. Reforming broken or outdated U.S. policies helps promote prosperity in the Palestinian territories and across the Middle East.

Here is recent success story: “Palestinians attempt to create their own start-up nation,” (Financial Times, May 1, 2016):

   Less than five years later, Yamsafer is one of the region’s largest hotel booking sites, according to its founder. It recently closed a $3.5m funding round in one of the biggest venture capital deals the Israeli-occupied Palestinian territories have seen.

    Yamsafer employs 70 people in Ramallah, a place where too many young university graduates are chasing too few jobs. “The people we hire are more hungry than people you would have hired in Dubai, Jordan or elsewhere,”

From China to Palestine: Charters & SEZs Preferred to States

Nation building and nation-states can be more trouble than they’re worth. For the Middle East, non-state paths to prosperity include Special Economic Zones (SEZs), charter cities, soft-partition, federalism, enclaves and more. Institutional reform matters for peace and economic development than political and election reform.

The March NSDA Public Forum topic is:

“Resolved: The United States should no longer pressure Israel to work toward a two-state solution.”

Consider the most economically-free place in the world--Hong Kong--is not a state and was long a colonial charter city before handed over (or back) to the People's Republic of China in 1997.

How might U.S. policy encourage and support more Hong Kong-like economic freedom across mainland China, as well as across the Middle East and North Africa? And can the institutional and economic reforms that transformed China's SEZs like Shenzhen from poor fishing villages into flourishing modern cities also work in the Palestinian territories?

The Fraser Institute’s Economic Freedom of the World: 2016 Annual Report: 2016 (September 16, 2016), is relevant for both the China policy topic and for the Israel/Palestine two-state topic. The reports top-rated countries:

Hong Kong and Singapore, once again, occupy the top two positions. The other nations in the top 10 are New Zealand, Switzerland, Canada, Georgia, Ireland, Mauritius, the United Arab Emirates, and Australia and the United Kingdom, tied for 10th.

Small and independent formerly British colonial territories Hong Kong, Singapore, and United Arab Emirates (“Abu Dhabi, Ajman, Fujairah, Sharjah, Dubai, Ras al-Khaimah and Umm al-Qaiwain”), plus New Zealand, Canada, Australia make up the top ten. Also in the top ten is Switzerland, an association of mostly-independent and diverse cantons. (However, not all former British colonies are wealthy or economically free, and the success of many today should not be taken as a defense of British colonialism.)

What lessons do these success stories hold for Israel, Palestine, and the U.S.? Here is an Economic Freedom Basics page with this video:

The people of Hong Kong were poor in the 1950s, as were people living in Palestine. Through the 1950s, millions of impoverished refugees arrived in Hong Kong, escaping from communist China.

Across the Middle East as in Asia, World War II disrupted and impoverished millions. Hundreds of thousands fled or were expelled from Palestine in the 1948 Arab-Israeli war. Then hundreds of thousands in long-established Jewish communities in Arab countries fled or were expelled.

Over the decades since 1950, Hong Kong residents have prospered, as have residents of Israel, but the economy of the Palestinian territories and its residents have not prospered.

Hong Kong’s charter with England protected international trade and investment, and taxes stayed low. Economic freedom and a great port enabled Hong Kong to grow rapidly prosperous. Could similar charter cities and economic freedom policies have enabled Palestinians and others in the Middle East to similarly prosper?

Turmoil and violence in Syria today turns on the Alawite minority’s long political and military control. Syrian could have been a much more prosperous place had the Alawites been able to keep their enclave independent from Syria. “Syria’s Ruling Alawite Sect” (New York Times, June 14, 2011). The article was written before the Syrian conflict erupted from Arab Spring protests, and as part of explaining Alawite history mentions:

During the French Mandate, there was even a short-lived Alawite “state” based in and around Latakia, created in 1922. As William L. Cleveland explained in his “History of the Modern Middle East,” the Alawite state was “administratively separate from Syria until 1942.”

Enclaves, charter cities, and other administrated territories have a long history across Europe as well. Just check out a map of Europe in 15th Century.

Political decentralization invites conflicts, but also open political competition where families and businesses can relocate to better governed territories. For an introduction to political decentralization, the Hanseatic League, and the potential of charter cities, see “The Politically Incorrect Guide to Ending Poverty,” (The Atlantic, July/August, 2010)…

Shenzhen, a sleepy fishing village across the bay from Hong Kong gained Special Economic Zone (SEZ) status from Deng Xiaopeng economic reforms in 1979, this 2009 report compares to similar "Instant City" success in the Arab world:  

"...Shenzhen exploded from a tiny fishing village on the Hong Kong border and Dubai rose from the dessert in the Middle East, it would be hard to fathom that a New York Times architectural critic would mention them in the same breath as Paris and New York. Both Shenzhen and Dubai have risen at a dramatic pace, and become known as an "instant city," albeit with very different histories and different scales, forms, and functions, respectively." (source: "INSTANT CITY" COMING OF AGE: CHINA’S SHENZHEN SPECIAL ECONOMIC ZONE IN THIRTY YEARS (pdf) (Trinity College, 2009)

For more on Shenzhen, see Wired's video: Shenzhen: The Silicon Valley of Hardware (Part 1) | Future Cities.

See also, "Can the Dubai Model Inspire Arabs?" (National Review, January 4, 2016)

Earlier version of this post continues here on NCPA Debate Central.

Jan. Public Forum: End the Cuba Embargo?

Students and teachers have visited Cuba for many years, as educational travel has been allowed by the U.S. government. Categories of legal travel to Cuba have recently been expanded. "U.S. High Schoolers Discover Cuba on Educational Trips," (US News, March 21, 2016) notes travel restrictions were further relaxed last year:

President Barack Obama is visiting Cuba this week, making him the first sitting president to visit the country in nearly 90 years. And last week his administration announced changes to travel restrictions that will make it easier for Americans to visit the country for educational purposes. ... 

And Marienfeld thinks her students were impressed with the Cuban students' outlook on the future. Many dreamed of one day visiting the U.S., she says.

"One of the kids said, 'You know, I was very impressed with how little they had, and how happy they were,'" she says. She thought that was a pretty good observation because they do have – and exist – on so very little, but culturally they are so rich, she says.

In an episode of Comedians in Cars Getting Coffee, Jerry Seinfeld's guest praises the amazing classic cars of Cuba. Seinfeld responds asking: "do you think that's what they want?"

People in Cuba make the best of what they have. But their economy is too small to support automobile manufacturing. The U.S. embargo has blocked exports from the U.S. for over fifty years. So Cubans developed an ecosystem of restoring and maintaining the Fords and Chevys already in Cuba before the 1959 revolution. For classic car enthusiasts, Cuba is wonderful. But for Cubans these cars are expensive to maintain, and their incomes are low.

For decades the Cuban government has claimed that the U.S. trade embargo is the source of Cuba's poverty. Economists agree the embargo has left both Cubans and Americans poorer than they would have been had travel and trade been legal over the last fifty years.

But economists also argue that Cuba's socialist economy system is a major cause for the poverty of everyday Cubans. Searching Google for "Causes of poverty in Cuba" brings up a wide range of articles, many praising the Cuban economic system and the socialist revolution.

For American tourists visiting Cuba may seem a low-cost Disney-like Fifties World vacation. But for many who live and work in Cuba and can't leave, living "on so very little" is not what they wish for if they could choose their government or do depart for the U.S.

In La Lucha: The Human Cost of Economic Repression in Cuba, Patricia Linderman describes her experiences living in Cuba (The Freeman, May 1, 2000):

As I opened the gate of the high security fence around my yard in Havana, a black woman in her 30s glanced left and right and quickly wheeled her rusty Chinese bicycle inside. Her name was Marta, and she was wearing a pair of my shorts, which I had once traded her for a small watermelon. This time she had pineapples in the plastic milk crate attached behind the seat of her bike. I handed her a dollar for two pineapples, then poked my head out into the street to make sure the coast was clear before Marta pedaled away. 

Luckily, there were no police officers stationed on the corner of my street that day. Although farmers and gardeners have been permitted since 1994 to sell excess produce, they must do so personally, in an approved market stall, paying high license fees and taxes. Marta’s little enterprise, buying and reselling fruit, vegetables, and used clothing, put her into one of the Cuban government’s most reviled categories: she was a “speculator.” If caught, she would be charged a huge fine, maybe even sentenced to jail. Furthermore, the Cuban Ministry of Finance could confiscate everything she owned, without a hearing, for the crime of “profiteering.”

So already a contrasting perspectives from a visiting student saying: "You know, I was very impressed with how little they had, and how happy they were." to the poverty/police state view from 2000. Maybe the Cuban economy has improved since 2000 and police state restrictions on commerce have declined.

This Miami Herald 20-year retrospective video on the 2004 Cuban Rafters story gives a glimpse of life in Cuba then and why so many were willing to take flimsy rafts for the U.S., crossing the "Straits of Death."