Despite relentless attacks by terror groups, an existential threat hanging from Iran, and near-pariah status among the elites of Europe, Israel has achieved remarkable economic success in recent years. How can that be and what does it mean?
Gilder, cofounder of the Discovery Institute, has written a well-informed account filled with under-appreciated but important points easy to overlook because of a few outrageous exaggerations. This is a shame because he offers much insight not only on the nature of Israel’s success but also on the nature of man. He contrasts two different reactions to Israel’s success. One approach (Gilder’s own) recognizes Israel’s superior accomplishments as an example of how well Jews do in so many fields of life.
The alternative approach stresses gaps of income, power, and status, maintaining that Israel’s success depends on Palestinian misery. Gilder marshals evidence to the contrary, showing that after 1967, Palestinians did better economically, building a free-market economy in tandem with Israel. In comparison, the Palestinian economy has fared poorly since the 1993 Oslo accords: Alongside the malfeasance of Yasser Arafat and his cronies, the flood of foreign aid, originally designed to create an economy that could stand independent of Israel, has transformed Palestinians from a society of entrepreneurs into one of leeches.
Gilder’s account of the reasons for Israel’s recent success rings true, focusing on the key question: What changed in Israel in the late 1980s? Those were the years in which Israel’s economic performance shifted from the doldrums of 1965-85 to respectable growth and then to its current stellar growth. As he points out, there were two major developments at the time: First and foremost, was the change in economic philosophy from quasi-socialist, heavy state intervention to an increasingly free market approach. The second important factor was the immigration of more than a million Russians, many of them highly educated, who transformed Israeli society by enriching its human capital.
Unfortunately, these are not the insights Gilder emphasizes. Instead he makes two rather breathless claims. In a chapter titled “The Central Issue,” he claims, “If Israel is destroyed, capitalist Europe will likely die as well, and America ... will be in jeopardy.” Undoubtedly, the destruction of Israel would be a historic tragedy, but it would not be the end of Western civilization, nor does Gilder back up this claim adequately. This is followed by, “The Blindness of the Experts,” which states, “When experts in the United States urge the creation of a Palestinian state, they are effectively endorsing a Nazi national movement with roots in Europe.” While the roots of the Palestinian national movement in the 1930s and 1940s are indisputably linked to Hitler’s ideology, one cannot reduce the whole of Palestinian politics to Nazism.
At least Gilder acknowledges the past. In Start-up Nation, Senor, a Fox News and Wall Street Journal contributor, and Singer of The Jerusalem Post, trumpet how Israel’s entrepreneur-friendly society has resulted in phenomenal economic growth—very true, and they provide interesting detail about how contemporary Israeli business culture encourages creativity and takes advantage of innovations. However, their account reads as if Israel were predestined to economic success. In fact, in its first forty years, Israeli economic policy was based on intensive state regulation hostile to entrepreneurs. This explains Israel’s earlier difficult economic times, culminating in the 1,000 percent inflation of 1984. Senor and Singer understate Israel’s achievements by ignoring its past.
The authors emphasize the economic impact of “battlefield entrepreneurs” nurtured by the freewheeling culture of the Israeli Defense Forces (IDF), but it is hard to take this seriously as a critical factor since the same military structure and culture were in place during the prior decades of Israel’s economic sluggishness. In fact, it is precisely during the period of Israel’s most accelerated growth that the IDF experienced its gravest setbacks since the 1973 Yom Kippur War: The 1982 Lebanon invasion had, by the 1990s, turned the Shi’a, Lebanon’s largest community, into supporters of anti-Israel terrorists, and in 2006, the Israeli military essentially fought to a standstill with their Hezbollah opponents. Gilder’s book is the stronger of the two reviewed here precisely because its fuller account of Israel’s past brings out how remarkable has been its more recent accomplishments.
The strongest chapter in Start-up Nation contrasts Israel to the booming Persian Gulf monarchies. Although both societies seem to be doing well economically, Senor and Singer show how oil wealth has insulated governments from pressure to open up socially, politically, or economically with the result that entrepreneurship is stifled rather than flourishing. As they describe it, even the most open gulf society, Dubai, has had its successes as a service hub, not as a center for innovation. Silicon Wadi lies outside Tel Aviv, not in the Arabian Peninsula.
