Michael Strain’s post about the Israeli economy’s resilience is worth your time. He talks to an economic official from the Israeli embassy, Noach Hacker, who discusses the ways the Israeli private sector responds to attacks on the country.
The Israeli economy’s impressive performance as an engine of innovation despite its challenging geopolitical circumstances is all the more remarkable when considering that the country was founded by socialists and governed by socialist political parties for roughly the first three decades of its existence. It wasn’t until 1977 that a nonsocialist political party first won enough seats in the Knesset to form a government. Over the succeeding decades, governments led by multiple different political parties have seen the wisdom of market reforms. Israel has privatized numerous state-owned companies, reduced its regulatory and tax burden, and attracted huge flows of foreign investment since it cast off its socialist past.
In March, Israeli economist Sagi Barmak wrote for NR Capital Matters about Israel’s economic success. He pointed to the decades of economic liberalization from successive governments as part of the reason. But he also mentioned a change in Israeli culture that accompanied the shift in Israeli politics away from socialism:
Alongside these changes in economic policy, it is important to highlight the cultural shift in Israel that pushed economic growth forward as well. In the Eighties, the communal ideal of the halutz (an early Israeli immigrant), working the land changed to a bourgeois ideal. The businessman, doctor, scientist, and entrepreneur replaced the swamp-draining halutz living on a kibbutz. In other words, the communal ethos began to fade, while the individualistic one began to rise. Culturally and in terms of economic policy, the history of Israel’s economy is the story of slow emancipation from a collectivist economic heritage handed down by its founders and the gradual adoption of ever greater economic liberty.
Most specific to the high-tech sector, what enables growth isn’t government investment — which was always comparatively meager and often channeled towards economically failing avenues — but an entrepreneur-friendly institutional environment and mostly, as I’ve pointed out, the removal of government control of the financial system. Unlike other industries, such as housing and transportation, which suffer from overregulation and the harmful impact of workers’ organizations, Israeli high-tech benefits from comparatively low governmental interference. It is the atmosphere of freedom in the high-tech industry that enables Israeli entrepreneurs to efficiently take advantage of Israel’s human capital.
Hacker sounds some of the same notes about Israel’s economic culture in his conversation with Strain. “Israeli innovation, when it faces a challenge, creates solutions that nobody ever thought of,” Hacker said. “And not only its solutions that are interesting and innovating; they’re business solutions, because that’s the way our country works.” That’s not the way a socialist country works. Israel has left its socialist legacy behind and prospered.
Read Barmak’s whole article from March here.