The Israel Test by George Gilder

Author:George Gilder
Language: eng
Format: mobi
Tags: Technology & Engineering, Israel, International Relations, General, Political Economy, Middle East, Political Science, Free Enterprise, Business & Economics, History
ISBN: 9780980076356
Publisher: Richard Vigilante Books
Published: 2009-07-22T00:00:00+00:00

This influx of Russians could not be clamped or channeled, tapered or intimidated into the existing economic framework. As Israeli financier Tal Keinan remarks, “they could not all work for Intel.” Today, immigrants from the former Soviet Union constitute fully half of Israel’s high-tech workers.

Despite the dramatic progress of the 1990s, at the dawn of the new millennium, Israel still lacked a financial sector capable of propelling the nation into the globally dominant role it stands poised to fill today. To get there would take one more great reform.

Like the launch of a new technology, the successful allocation of capital is an elegant expression of the law of capitalism (from the latin word “caput” for head) that mind rules matter. Jews throughout history have excelled in this most intellectual of capitalist endeavors. And yet Israel until recently had virtually no investment houses, deep capital markets, or venture capital. With performance fees barred, hedge funds were essentially illegal. “All my Jewish friends were making their money at Goldman Sachs, while Israel’s finance was dominated by a heavily subsidized labor union,” recalls Keinan.

In the mid-1980s, Yitzhak Shamir’s Likud government, with Benjamin Netanyahu as its ambassador to the United Nations, did cut taxes – increasing the rewards of work and investment by some 30 percent, dramatically boosting economic growth, and reducing inflation. As prime minister in the 1990s, Netanyahu also ushered in dramatic deregulation, along with tax cuts that brought in floods of new revenue. Further spurring local entrepreneurs was the Yozma program in 1993, which waived double taxation on foreign venture-capital investments in Israel and put up a matching fund of $100 million from the government. Demand for the money became so intense that the government hiked the amount and doubled the matching-funds requirement, but private infusions swamped the government incentives. Nevertheless, throughout the early 1990s, much of the money powering Israel’s technological ascent came from the Israeli government or from American technology companies. As the millennium dawned, Israel had failed to create a financial-services industry or to wrest control of much of Israel’s capital from the hands of Histadrut.

The force driving the Israelis decisively out of their socialist past into the modern world of finance was the ingenuity of Netanyahu. As finance minister, Netanyahu used Israel’s financial crisis of 2003 and 2004, precipitated by the latest campaign of Palestinian terror, as a lever to transform Israel’s economy from a largely socialized domain dependent on foreign finance into one of the world’s most open and flourishing financial systems. In the process, he created what his occasional advisor Keinan today calls “the greatest opportunity in our lifetimes.”

An Israeli supply-sider, Netanyahu faced the adamant opposition of Histadrut and its allies in the Knesset. To overcome the hostility to finance capitalism that had long hobbled the Israeli economy, Netanyahu enlisted vital help from President George W. Bush and his treasury secretary, John Snow. Netanyahu sought a sovereign loan guarantee that would give Israeli bonds the full faith and credit of the United States Treasury, so

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