TCS Daily

Free Markets and High Tech Goes Far

By The Editors - May 23, 2008 12:00 AM

Benjamin Netanyahu was Israel's Prime Minister from June, 1996 to July, 1999. Educated at both Harvard and MIT, Netanyahu served as finance minister from 2003 to 2005, when he moved the country toward more liberalized markets. He is now Chairman of the Likud Party.

TCS contributor Ben Wattenberg met with Netanyahu in his offices at the Knesset in Jerusalem to discuss the state of the Israeli economy and security at the sixtieth anniversary of its founding. The video of this interview is available at

TCS: Of the 3200 or so firms in listed on NASDAQ, America has the most. Number two is not Britain, France, Canada, or China. It's Israel, which is pretty good stuff for a country of six million people.

Netanyahu: And if we're so smart how come we're not rich? We should be a lot richer.

Yeah, we have had high tech for quite some time. We produce more conceptual products per capita than any other country in the world, so we should be perhaps the richest or among the richest countries. And yet we're not.

Countries that were behind us 20 years ago - Ireland, Singapore, Spain - they don't have nearly the capacity to produce information and conceptual products that we did. They beat us.

Why? It's because they liberated their markets a lot faster. In other words, high tech without free markets doesn't go very far.

Free markets without high tech goes very far.

But free markets with high tech goes the distance.

TCS: Free markets with free politics?

Netanyahu: Free markets and high tech implies greater political freedom. But what I'm arguing is that we had to liberate our economy to get this bounce. And I believe we can go a lot further.

The most difficult things in the economy are already behind us. We did them when I was Finance Minister at the depth of a crisis, the likes of which we didn't have for decades. Our GDP was shrinking.

And my concept was to use the crisis not merely to extricate ourselves from it, but to catapult Israel into a free market economy. I said we could grow very quickly at six percent, and ultimately I think we can grow eight percent a year for about a decade.

People say, "You can't do that. If you've passed 20 thousand dollars GDP per capita - which we have - you can't grow at 8 percent."

Sure we can. Ireland did when its per capita income was higher than ours.

If you're lucky enough to have constraints on competition, as Israel does, France does, Germany does, Italy does, if you're lucky enough to have those constraints and you remove them, you can grow very rapidly for a few years and put yourself in a different category, as Ireland did. After you do these reforms - after seven years, eight years, ten years - growth will go down two or three percent -- four percent tops. Even if you lower your taxes, even if you streamline your government.

But for the time that you are removing barriers to competition, you will grow very rapidly and this the opportunity that I saw, that Israel is now enjoying.

Government intervention is like a heavy boot on a coiled spring. When you remove it, that spring expands for some time. And this opportunity now faces all the advanced economies, especially those that still have great constraints on competition.

TCS: The neo-conservatives in America regard you -- because you know America and you're a free marketeer and you're mildly pro-Israel -- as a model and a hero. Could speak a little bit about the neo-con idea of a foreign policy that mixes realism and idealism?

Netanyahu: I think there was a big battle of ideas in the 1970's and 1980's which was world encompassing. It involved of course the Cold War and the conflict at the time between free societies and the Soviet Union.

In that sense there was a very clear alignment of ideas across boundaries. And without doubt I was part of it.

And, yet, I thought that there was an issue that was climbing up that initially was seen in the context of an East-West divide. And this was the use of terrorism as a proxy for Soviet agitation against the West. It was really almost collusion between the Soviet Union and some of the radical Arab states to use various terror groups to strike at Western targets. It was war through other means.

And I think I had some involvement in trying to bring out this problem and many of those whom you call neoconservatives understood this point.

When the Soviet Union fell, there was a sense of great triumph. It was a bloodless victory, it was a vindication of this viewpoint. And certainly terrorism or the hijacking that we had experienced - where these beasts prowled our international airways and sometimes waterways - that subsided.

So, there was a lull. And I remember a conversation I had with one of the leading neoconservatives who will go unnamed. The magazine that he had been heading for many years published a very brilliant article, which basically said, "Well, you know, the liberal democracies, the free market liberal democracies have won and it's over and it's all downhill in a positive sense." This must have been 1993 or '94.

And I called him up and I said, "How can you publish such a brilliant piece of nonsense?"

And he said, "What do you mean?"

And I said, "Well, yes, maybe Soviet communism has been defeated. This is true. But there is a much more insidious threat that is appearing."

And he said, "What's that?"

And I said, "Well, it's militant Islam, which in many ways is more dangerous, because it doesn't know the limits to power and could be undeterrable if it acquires nuclear weapons."

He said, "You really think so?"

And I said, "Yes." And following the conversation I decided I'd write a book and I did. It was called Fighting Terrorism. It was published by Ferrar-Strauss in June of 1995.

And in this book I said that the West - including the leading intellectuals in the West - do not really understand the danger and gravity of militant Islam.

I think that human freedom is expanding and I think that the information revolution and the economic revolution are expanding day by day. Some people are afraid of it, just as they were afraid of the industrial revolution 150 years ago.

And yet it's positive. It increases wealth, it takes hundreds of millions of people out of poverty in a few years, and will take billions out of poverty and expand the pie for everyone.

There is a contrary force that is charging like a rogue bull elephant at this great force of globalization, and that's the force of militant Islam that rejects the whole idea of choice and inquiry and independent decision.

It's a retrograde ideology. It seeks to put mankind back into a medieval creed of a certain kind. It's very dangerous because it is not clear that it would be deterrable. It's a cult of death. It's a cult of suicide.

We've had suicides before in history, but not on this scale. Those people who were going to blow themselves up over the skies of London last year were going to do it with their wives and their children.

So, this is something we've not seen. Certainly not with communism, which was infinitely rational in its use of force. They were very careful. They never wanted to put their zealotry before their survival. Militant Islam does.

And the quest for nuclear weapons by Iran or the possibility that a nuclear armed Pakistan would turn to Islamism - these are merely harbingers of the wedding of this demon with the demon of nuclear weapons.

But the main point is that, at the time, there was a thought, which covered the spectrum of American political opinion, which basically said, "It's over, you know -- for good or bad -- you know Democracy won."

So, I think human freedom is expanding, but I think it's challenged by an irrational force that has not been around before in history.

This is the great test of our time.

TCS: It's a pretty good rule in politics and in life that nothing's over and nothing ends.

Netanyahu: Even after the fat lady sings, it's never over.



What really drives Arabs and others who hate the Jews is envy.

It is what drives the rest of the world to hate the USA.

All that can be done combat that is to work even harder to be successful, but don't forget about the other deadly sins of greed and pride.

Recall that in a free market, people trade freely for mutual benefit. Both gain in the trade or the trade would not occur. There is no greed involved in free trade.

Much of Muslim/Arab terrorism is driven by frustrated lust as most of each generation of boys realizes that the girls are or will be monopolized by multiple wife and concubine harem masters like Osama Bin Laden's father who had something like 50+ sons via women he bought in the marketplace like cabbages.

The upper class terrorists are driven by fear that their harems may become infected with western ideas like equality. They come to the west for college and enjoy themselves with all the vices. Then they return to sandland and go to work preventing western ideas from corrupting their slaves.

Dont' need to come to the west.
They can drive to Bahrain.

It would be destroyed...
or it would destroy its enemies before they were destroyed.

US aid is probably more significant that I thought
Hi Joannie,
Your question sparked me to do a quick google on the subject. We have been giving Israel about 3 Billion a year and their GDP is only about 180 Billion, so our aid is about 1.5% of their GDP.

Much of it appears to be military related so what we're really doing is making it possible for Israel to maintain a large military (for its size) without fully having to bear the cost burden of that military.

I tend to be an Israel supporter because Jews don't seem to have a big desire to kill me while the Muslims surrounding them do want to kill me - and I take people wanting to kill or subdue me pretty personal. But the scale of our aid relative to their economy surprised me.

FY2004 foreign aid
Iraq: 18.44B
Israel: 2.62B
Egypt: 1.87B
Afghanistan: 1.77B
Columbia: .57B
Jordan: .56
Pakistan: .39B

More US aid is given to Arab and Muslim states than to Israel.

Context Check!
The 'aid' to Israel and Egypt really isn't aid, but a 'pseudo-treaty' obligation of the United States in the Camp David Accords:

"The agreement also resulted in the United States committing to several billion dollars worth of annual subsidies to the governments of both Israel and Egypt, subsidies which continue to this day, and are given as a mixture of grants and aid packages committed to purchasing U.S. materiel. From 1979 (the year of the peace agreement) to 1997, Egypt received $1.3 billion annually, which also helped modernize the Egyptian military, turning it into the largest in the Middle East.[4] Soviet-supplied until 1979, Egypt now received American weaponry such as the M1A1 Abrams Tank, AH-64 Apache gunship and the F-16 fighter jet. In comparison, Israel has received $3 billion annually since 1985 in grants and military aid packages" -- Wikipedia entry on the Camp David Accords.

Basically, The Camp David Accords was just a bribe to make Israel and Egypt 'place nice' with each other. It's like a parent bribing his/her kids to stop fighting with each other by an expansion of their allowances.

We got peace - in the sense that risk to future US/Soviet direct involvement in another Arab-Israeli war was severely mitigated. If we stopped bribing them -- especially if we stopped the money going to Eqypt -- no doubt there would be war breaking out between the two again. And, what I mean by the aforementioned peace, the Accords (and bribe money) delivered:

Israel got a peaceful front (the Eqyptian one), thus making another multi-pronged invasion of Israel coming from all sides difficult for the other Arab states to pull off. Egypt was effectively removed from the equation that Arab leaders ran through their heads as to whether or not to attack Israel.
Egypt had to behave in other backing Hamas and the PLO anymore. Either that, or the bribe money stopped flowing. At the very least, the Egyptian goverment and military had to keep their hands clean. This is an on-going thing with the Egyptians that I am sure we can all appreciate even today.
American suppliers -- both military and non-military -- benefited, so the money was ultimately just another welfare program for good rent-seeking industries over here. Yes, yes...Marjon! We know the arguments over this one. I agree with them, in principle. But least the money came back over here.

All of the above translated to a pretty good deal for the US -- insofar as the warped realities of international 'peacemaking' makes it. Remember, during the darker hours of the Yom Kippur War, Nixon had our planes on our aircraft carriers parked in the Med painted with Israeli markings in preparation for us to plunge into the Big Hairy Furball. We were THAT close to becoming actively involved in Israel's defense. The Soviets were willing to get involved, too. That would have no doubt risk escalation to the point of US/Soviet troops firing on each other.
For that reason alone, Camp David and all that subsequent bribe money spent since then as been a pretty darn good investment, if you think about it.
And, the 'aid' was not indexed to inflation. So, it is not even worth as much as it did initially. The only problem with that is that the Egyptians occasionally have some low-ranking flunky float to the the press now and again that the devalued aid package might make them rethink their continued good behavior.
And, someday that will be true.

And if you look at the others on that list Marjon provided us, they are all Very Important Bribees to us for some reason or another. Some are of more dubious quality as far as any meaningful ROI is concerned, I admit. But the reasons are pretty stark and clear to anyone with a passing interest in monitoring world events.

Free people value life.
Contrary to most liberal dogma, the USA values life more than treasure.

Helping Israel, the only democracy in the region, in spite of so much opposition, domestic and foreign, also demonstrates US commitment to liberty.

Buying Peace Cheap!
Well...I had wondered often about our foreign aid. Seeing the actual list, I am pleased that we are buying peace for so little.
Iraq will eventually be a lot cheaper but the Iraq War shows us that wars are a lot more expensive than buying peace.
Before the Iraq War, it appears that Israel was one third of our foreign aid. At 3 Billion dollars a year, that means we were only spending about 9 billion on foreign aid.
According to some figures from MSNBC (NOT a reliable & unbiased source), the Iraq War will cost $12 Billion a month this year.
Our country can easily afford $12 Billion a month. What we can't afford is to spend more than we take in. We really need to balance our budget.
And no... I know that $12 Billion a month is a lot of money...but we spend a lot more on welfare programs.
{quote}According to The Budget for Fiscal Year 2008, Historical Tables, total outlays for Means Tested Entitlements in 2006 were $354.3 billion.{/quote}

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