Sunday, April 18, 2010

More Facetime--On Israel's Economy and Peace

"Israel’s technological success is the fruition of the Zionist dream," David Brooks wrote a couple of months ago, following on the success of the book, Start-up Nation; "The country was not founded so stray settlers could sit among thousands of angry Palestinians in Hebron. It was founded so Jews would have a safe place to come together and create things for the world."

Brooks might have added that among the things created for the world would be the poems, songs, tracts, and art of a modern Hebrew culture, but never mind. On the whole, I can't imagine a more welcome sentence than Brooks' accounting for why the country was founded, especially to those of us who've been making the case since 1991 and before. The choice really is between Greater Israel and greater Tel Aviv. So why do I feel so irritated?

I tried to answer the question, more or less, in a recent television interview on TV Ontario's thoughtful program, "The Agenda." (My thanks to the show's host, Steve Paikin, who does his homework, and gives his guests time to make an argument.) In a nutshell, what drives most Israeli entrepreneurs crazy when they hear Brooks, Dan Senor, Saul Singer, and other neocons rhapsodize about Israel's economy is the use of its (provisional) success to manage Israel's brand abroad, implicitly defending Bibi Netanyahu's status quo. Presumably, the fight with the Arabs leads to an army, the army to technology, technology to a pulling away from neighbors, economically and in terms of "freedom," and the pulling away should be respected, emulated, and defended by Israel's friends (you know, Americans).

There is, of course, some truth to the connection between Israel's technology and the IDF. (Again, I wrote about this at length in HBR some time ago.) But, on the whole, the neocon position gets things essentially backwards. What advanced Israel's technology and management in the 1990s was the process of globalization that came in the wake of Oslo. For high tech actually depends on intimate relationships with global customers, whose problems you solve by adapting technologies you would otherwise not be able to develop. Lose the global relationships and the technologies whither. Moreover, Israel's army was good training for some things, but Israelis have had much more to learn from the business culture of global corporations than teach.

Political isolation, then, will mean economic implosion: already, friends in venture capital firms report that activity is about a third of what it was when Start-up Nation was written. Peace is a precondition for continued growth, as are massive investments in Israel's foundering educational system, which the defense budget suffocates. And growth must come fast, since Israel's inequalities and levels of unemployment are truly disquieting.

If Start-up Nation has a hero, it is Dov Frohman, the founder of Intel-Israel. I interviewed Dov for the Hebrew Republic, and asked if we cannot depend on the world coming to us for our technology? His answer was not polite:

"This is bullshit. Bullshit. Investors will not come to us in a big way unless there is political stability. Personal and economic stability, or the hope of stability—a process. In the global economy, you don’t only need Jewish investors, you need global investors. Investment is not colored with sentiment, and looks at the overall situation. What Bibi says is demagoguery. He’s done some of the right things which in a healthy environment would have been pretty good. But before these policies can have an impact, we’ll have more violence. In this environment, big companies do OK, and little independents do very badly.”

But what about all the investment we have seen, even the uptick in the stock-market?

“There is a lot of financial type of investment but little production type of investment—there are investments which can be taken out at will. And in the meantime, we are losing our reputation as a place for global companies to pioneer. It’s hard to restart the engine; five years of no investment, means ten years of paying the price for no investment. And then what will make our entrepreneurs want to stay in Israel—if they don’t have quality of life? There is continuous movement of people, they will want to stay elsewhere. More and more, companies can consult locally and can consult abroad; having more foreign companies here is still important, though in the long-run we are going to have start-ups with problems here like everywhere else. But the really critical thing is keeping our people here. I don’t need to do a poll to know that 50 percent of the young people would go.”

2 comments:

Yoni Ish-Hurwitz said...

Brilliant post! I'm trying to track FDI trends in response to geopolitical events such as Oslo for my master's thesis at NYU and found this right on the spot.

I spoke with with Dr. Ian Bremmer and Dr. Geoff Porter of Eurasia Group (the greatest political risk consultancy) who also suggested "reputation risk", in the same line of what you wrote about business needing global relationships and the danger of isolation. And as Prof. Danny Ben-David said in the last article published in Ha'aretz about his latest report, we live in a bad neighborhood, so failure in the economy is not an option.

I also spoke with Benny Landa, founder of Indigo, who said in the same vein as Dov Frohman that investments in Israel do not create jobs and are therefore of little help. I find that much more debatable though.

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