Editor’s Note: This article has been updated with additional detail on recent developments in Gaza.
Gaza in the hands of Hamas, with masked militants sitting in the president’s chair; the West Bank on the edge; Israeli army camps hastily assembled in the Golan Heights; a spy satellite over Iran and Syria; war with Hezbollah a hair trigger away; a scandal-plagued political class facing a total loss of public faith.
At a glance, things aren’t going well for Israel. But here’s a puzzle: Why, in the midst of such chaos and carnage, is the Israeli economy booming like it’s 1999, with a roaring stock market and growth rates nearing China’s?
Thomas Friedman recently offered his theory in the New York Times. Israel “nurtures and rewards individual imagination,” and so its people are constantly spawning ingenious high-tech start-ups–no matter what messes their politicians are making. After perusing class projects by students in engineering and computer science at Ben Gurion University, Friedman made one of his famous fake-sense pronouncements: Israel “had discovered oil.” This oil, apparently, is located in the minds of Israel’s “young innovators and venture capitalists,” who are too busy making megadeals with Google to be held back by politics.
Here’s another theory: Israel’s economy isn’t booming despite the political chaos that devours the headlines but because of it. This phase of development dates back to the mid-’90s, when Israel was in the vanguard of the information revolution–the most tech-dependent economy in the world. After the dot-com bubble burst in 2000, Israel’s economy was devastated, facing its worst year since 1953. Then came 9/11, and suddenly new profit vistas opened up for any company that claimed it could spot terrorists in crowds, seal borders from attack and extract confessions from closed-mouthed prisoners.
Within three years, large parts of Israel’s tech economy had been radically repurposed. Put in Friedmanesque terms: Israel went from inventing the networking tools of the “flat world” to selling fences to an apartheid planet. Many of the country’s most successful entrepreneurs are using Israel’s status as a fortressed state, surrounded by furious enemies, as a kind of twenty-four-hour-a-day showroom–a living example of how to enjoy relative safety amid constant war. And the reason Israel is now enjoying supergrowth is that those companies are busily exporting that model to the world.
Discussions of Israel’s military trade usually focus on the flow of weapons into the country–US-made Caterpillar bulldozers used to destroy homes in the West Bank and British companies supplying parts for F-16s. Overlooked is Israel’s huge and expanding export business. Israel now sends $1.2 billion in “defense” products to the United States–up dramatically from $270 million in 1999. In 2006 Israel exported $3.4 billion in defense products–well over a billion more than it received in US military aid. That makes Israel the fourth-largest arms dealer in the world, overtaking Britain.