It has often been the case that big events that take place in Western democracies tend to echo. For example, a shift to the left or right in an election in the UK or Germany often hints at a similar dynamic coming to the US or vice versa. That insight should be front of mind for American business leaders as they observe the events of the past few months in Israel, as a popular uprising has taken to the streets in opposition to the government’s plan to weaken the judiciary system.
While much attention has been paid to the role of the military and the wider public in the street demonstrations, in fact the impact of the protests has been largely driven by the business and investment community. Before many Israelis had fully processed the ramifications of the government’s judicial reform package, top Israeli business leaders, especially in the tech sector, understood that weakening the rule of law and separation of powers would repel global capital. If foreign investors could not count on their contracts to be fairly enforced by independent courts, their willingness to put money into Israeli companies would be sharply diminished (at a minimum, it would force them to charge a “risk premium” for entities seeking their capital).
The economic risks were made clear to Israelis in short order. Since the government unveiled its plans the Israeli shekel dropped to its lowest price against the US Dollar since 2019, foreign investment in Israel’s booming high-tech sector dropped to its lowest level since 2018, S&P hinted that adoption of the reforms could lead to a credit rating downgrade, while the Israeli stock market gave up nearly half of its post-pandemic recovery.
More impactful still has been the active presence of high-profile Israeli investors and business leaders in the protest movement. Historically, the business community of Israel has tread carefully around politics. But in this case, they went all in signing open letters calling for the government to walk back its proposals, contributing to protest movement organizations and appearing in person at rallies. Tech entrepreneurs have even donated their talents to help stitch together networks of protestors, enabling them to rapidly respond to events.
Taken together, these efforts by Israeli investors and business leaders helped convince many middle-of-the-road citizens that the government’s approach threatened their financial well-being. The results have been dramatic, with recent surveys showing a collapse in support for the government.
So what does this all mean for American business?
To be sure, American business people are no strangers to politics. US businesses have always engaged with legislators, regulators and courts to protect their commercial interests; and, more recently, companies have begun engaging on “values” issues like diversity, equity and inclusion, environmental protection, human rights on other such topics.
But what is happening in Israel is something quite different. It’s not about advocating for or against a specific policy that could help or harm the business, nor is it about expressing the preferences of the business or its leadership. Rather, from the perspective of Israeli businesses it is about defending the fundamental conditions that enable market-based capitalism to exist.
There is no analogous risk in the US at this moment. Yet we do see plenty of signs of policymakers, regulators and judges pushing the envelope further and further, taking actions that appear to have little precedent. It is not difficult to imagine scenarios in the coming years in which a future administration, Congress, regulatory body or court takes steps that an industry or even the broad American business community simply cannot accept.
Against that backdrop, American business leaders would do well to think through these scenarios in which they would feel called to defend the basic building blocks of our system. That effort might include:
- Engaging in foresight exercises to imagine where and how certain core elements of our market system could be threatened and what could be done to address the threat if it emerged;
- Forging dialogue with other business leaders to share perspectives and to consider ways to signal to the political community where the red lines are that would provoke a response;
- Considering ways to engage in the public dialogue before a true crisis emerges to build bi-partisan, broad based public support for certain foundational principles.
Israel’s business leaders are showing how at moments of greatest crisis the voice of value creators can have a significant impact. It is to be hoped that American businesses never have to do the same. But what happens in one country does often make its way here. Far better to be prepared than caught off guard.