The Titanic Has Set Sail for Palestine

As long as the foreign policy debate in Israel is not conducted with consideration for managing the maximum risk entailed in each option, we are not much different from the captain of the Titanic.

Before its maiden voyage, the Titanic, which was the largest, most luxurious and most advanced ship of its time, was dubbed "the ship that couldn't sink." Relying on that moniker, the Titanic set sail with enough lifeboats on deck to accommodate only half of its passengers. Even that capacity was considered excessive in light of the accepted standards of the time.

The fate of the Titanic is etched in the annals of risk management. Those who deal with the subject have drawn lessons from the sinking of the ship, for which the issue of risk probabilities is irrelevant. All that matters is the capacity to survive if risk becomes reality. In other words, it doesn't matter what the chances were that the Titanic would sink. The really important question was what the chances were that the passengers would survive in the improbable chance that the ship really did sink.

Abbas - Reuters - September 25, 2011

Over the years, this approach to risk management became the basis for the doctrine known as VaR, Value at Risk, which requires all of the financial agencies around the world to look at the extremes of risk distribution. This approach holds that regulatory agencies around the world require banks and insurance companies to prepare not only for expected risk but also for the unexpected risks that present extreme dangers even if the chances that they would ever occur are negligible. Despite these tiny probabilities, oversight agencies ask: "What will happen if such an event nonetheless actually occurs? Will your bank survive it?" The global financial crisis of 2008 taught us that implementation of the VaR doctrine at many banks was faulty.

The international banking industry is now learning the lessons of that failure. While the financial world studies its mistakes and works to correct them, in the world of diplomacy, a discussion of that nature hasn't even begun to take place. The lessons of last weekend at the United Nations teach that everything that could have been said has been said about the dueling speeches in New York by Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas, except what is most important. The foreign policy debate in Israel has not addressed questions of risk management: What are the maximum risks involved in each option that Israel faces and is the country capable of surviving each of them, and how?

In Israel, the public debate is almost always centered around the advantages of options advocated by a particular party. The advantages, however, are not important and don't advance the debate. The Titanic was magnificent in its construction and the probability that it would sink was considered insignificant, but that was irrelevant to consideration of how safe it was.

Only its shortcomings, particularly the small number of lifeboats on board, really mattered. Its weak points were the one thing that the captain of the Titanic as well as the stewards of the Israeli economy did not discuss.

As a general rule, it can be said that Israel is wavering between two extreme alternatives: either continuing to control the territories forever or giving up the territories and allowing the establishment of an independent Palestinian state. Each of these options has its advantages, but that's not what is important. The debate has to center on the disadvantages of the two options, or the maximum risks each entails.

As another general rule, it can be said that the disadvantage involved in continued, permanent rule over the territories would render Israel an outcast in the international community and lead to the disintegration of domestic and international support for the country and perhaps even all-out war waged by the Arab countries against it - in the absence for support for Israel. The disadvantage involved in withdrawing from the territories is that a scenario such as what occurred in the disengagement from the Gaza Strip could also occur in the West Bank, which would be turned into a "Hamastan." Israel would find itself in a situation of constant war with the Palestinians, including missiles falling on its city centers.

These are two ominous extreme scenarios. It is not at all clear what the probability is that either would transpire, but that is not at all important. The only questions that should concern Israel are what the chances of survival are if one of the scenarios actually occurs and under which will Israel manage to cope more successfully. As long as the foreign policy debate in Israel is not conducted with consideration for managing the maximum risk entailed in each option, we are not much different from the captain of the Titanic.