Israel and its Rise to the Peaks of the World Economy

I made it to Tel Aviv for a 10 day Holy Land Tour with Discovery Institute and Michael Medved, the polymathic talk show host. With us are our wives and 150 followers.

Every day I will be posting my observations from Israel, while every evening Michael will conduct his three-hour talk radio show in time to appear live in the afternoon back in the U.S.

Michael says that I can barge into his program if I want, so you might hear me on the radio during the week.

I spent the flight reading my book, The Israel Test, published in 2012 by Encounter, which I will be discussing in a speech tonight. I had not read it since it came out, so I read it almost as if for the first time.

Although there are stretches where I felt I expatiated too long on the futilities of “Land for Peace,” in general, I found myself enjoying the read. Anyone intrigued by the “Israel Test” theme can listen to my five-minute summary for Prager University on YouTube, which has had 1.4 million downloads so far. You can click here to see the video.

Israel’s Climb to the Top

In general, it shows that the establishment of Israel was almost a disaster for the Jews until they gave up socialism in 1985, as 1,000% inflation impended and Israel was on a path resembling Venezuela today.

With a unity government, they turned the country around. Since then, as I wrote in The Israel Test, with Benjamin Netanyahu as the central figure:

“In fewer than 25 years… Israel had accomplished the most overwhelming transformation in the history of economics, from a nondescript laggard in the industrial world to a luminous first. Today, on a per capita basis, Israel far leads the world in research and technological creativity. Between 1991 and 2000… Israel’s annual venture capital outlays, nearly all private, rose some 60 fold, from $58 million to $3.3 billion; companies launched by Israeli venture funds rose from 100 to 800, and Israel’s information-technology revenues rose from $1.6B to $12.5B. By 1999, Israel led the world in the share of its growth attributable to high-tech ventures: an astonishing 70%…”

By 2008 a survey of the world’s venture capitalists by Deloitte Touche showed that Israel had eclipsed all the countries of Europe and ranked second only to the US.

Michael Medved’s brother Jonathan was a leader of the venture capital surge in Israel and aided me in finding companies here. I will be meeting with him later this week.

Venture capital is the most catalytic force in the world economy. In the US, venture-backed companies contribute some 20% of all GDP and by my time-price measures perhaps substantially more. Israel’s venture led economy steamed through the financial crisis of 2008 and beyond without a single down quarter, while its shekel steadily appreciated.

The message of Israel’s achievement is that China — currently undergoing a similar surge of venture investment — maybe also able to accomplish a similar rise to the peaks of the world economy, despite signs of overinvestment in real estate and infrastructure. A further lesson is that an appreciating currency has no destructive impact on trade in an economy spearheaded by innovation.

After sleeping through much of the day in my hotel next to the beach in Tel Aviv, I took a three and a half-mile run up the sands to the picturesque towers of Jaffa Old City and back while the sun set gloriously over the Mediterranean.

I recalled my many previous trips to Israel. And I thought of Gaza, less than 75 miles to the South, with similar beaches and balmy weather and similar possibilities of human advance.

Could the Gazans join the Israelis to create a Riviera on their exquisite beaches, their glowing sands. To do so they would have to leave behind a world of zero-sum chimeras.

Under Benjamin Netanyahu, Israel’s Churchillian leader now up for election again this week, the Israelis showed anything is possible.

In an information age, economies can change as fast as minds can change.


George Gilder
Editor, Gilder’s Daily Prophecy

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