Open Zion, a featured section of The Daily Beast, where I contribute a regular column.
Senor’s intellectual bona fides were established by his having “co-authored” a book with Saul Singer. In a nutshell, what drives most Israeli entrepreneurs crazy when they hear people like Senor 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, Israel’s military and entrepreneurial culture leads to technology, technology to a pulling away from neighbors—both economically and in terms of "freedom"—a pulling away that 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 experience of serving in the IDF. It’s not just the celebrated 8200 information technology/intelligence unit. If a tank crew can keep a tank up and running 24/7, they can keep almost any capital equipment wrapped in envelopes of software up and running 24/7. I wrote about Israel’s high tech prospects at length in HBR back in 1991.
But, on the whole, Senor and the neocons who lap him up get 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 wither. 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 participation in the workforce are truly disquieting. Netanyahu’s new taxes, which take effect this month, are meant to preempt a debt crisis that could look as bad as Greece if real estate implodes and some of our oligarch families take their banks down with them. But I digress.
If Start-up Nation has a hero, it is Dov Frohman, the founder of Intel-Israel. When I was writing The Hebrew Republic, I asked Dov, who is a friend, 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.”