Start-up Nation

by Dan Senor, Saul Singer

  Ben-Gurion was also Israel’s first national entrepreneur. Theodore Herzl may have conceptualized a vision for Jewish sovereignty and begun to galvanize Diaspora Jews around a romantic notion of a sovereign state, but it was Ben-Gurion who organized this vision from an idea into a functioning nation-state. After World War II, Winston Churchill described the United States Army general George Marshall as the Allied Powers’ “organizer of victory.” To paraphrase Churchill, Ben-Gurion was the “organizer of Zionism.” Or in business terms, Ben-Gurion was the “operations guy” who actually built the country.

  The challenge facing Ben-Gurion in operational management and logistics planning was extremely complex. Consider just one issue: how to absorb waves of immigrants. From the 1930s through the end of the Holocaust, as millions of European Jews were being deported to concentration camps, some managed to flee to Palestine. Others who escaped, however, were denied asylum by different countries and forced to remain in hiding, often in horrendous conditions. After 1939 the British government, which was the colonial power in charge of Palestine, imposed draconian restrictions on immigration, a policy known as the “White Paper.” British authorities turned away most of those trying to seek refuge in Palestine.

  In response, Ben-Gurion launched two seemingly contradictory campaigns. First he inspired and organized some eighteen thousand Jews living in Palestine to return to Europe to join the British army in “Jewish battalions” fighting the Nazis. At the same time, he created an underground agency to secretly transport Jewish refugees from Europe to Palestine, in defiance of the United Kingdom’s immigration policy. Ben-Gurion was at once fighting alongside the British in Europe and against the British in Palestine.

  Most histories of this era focus on the political and military struggles that led to the founding of Israel in 1948. Along the way, a myth surrounding the economic dimension of this story has arisen: that Ben-Gurion was a socialist and that Israel was born as a thoroughly socialist state.

  The sources of this myth are understandable. Ben-Gurion was steeped in the socialist milieu of his era and was heavily influenced by the rise of Marxism and the Russian Revolution of 1917. Many of the Jews arriving from the Soviet Union and Eastern Europe in pre-state Palestine were socialist, and they were highly influential.

  But Ben-Gurion was singularly focused on building the state, by whatever means. He had no patience for experimenting with policies that he believed were simply designed to validate Marxist ideology. In his view, every policy—economic, political, military, or social—should serve the objective of nation building. Ben-Gurion was the classic bitzu’ist, a Hebrew word that loosely translates to “pragmatist,” but with a much more activist quality. A bitzu’ist is someone who just gets things done. Bitzu’ism is at the heart of the pioneering ethos and Israel’s entrepreneurial drive. “To call someone a bitzu’ist is to pay him or her a high compliment,” writes author and editor Leon Wieseltier. “The bitzu’ist is the builder, the irrigator, the pilot, the gunrunner, the settler. Israelis recognize the social type: crusty, resourceful, impatient, sardonic, effective, not much in need of thought but not much in need of sleep either.”5 While Wieseltier is describing the pioneering generation, his words fit those who risk all to found start-ups. Bitzu’ism is a thread that runs from those who braved marauders and drained the swamps to the entrepreneurs who believe they can defy the odds and barrel through to make their dreams happen. For Ben-Gurion, the central task was the wide dispersion of the Jewish population over what would one day become Israel. He believed that an intensely focused settlement program was the only way to guarantee Israel’s future sovereignty. Otherwise, unsettled or thinly settled areas could someday be reclaimed by adversaries, who would have an easier case to make to the international community if Jews were underrepresented in contested areas. Moreover, thick urban concentrations—in cities and towns like Jerusalem, Tiberias, and Safed—would make obvious targets for hostile air forces, which was another reason for dispersing the population widely.

  Ben-Gurion also understood that people would not move to underdeveloped areas, far away from urban centers and basic infrastructure, if the government did not take the lead in settlement and provide incentives to relocate. Private capitalists, he knew, were unlikely to take on the risk of such efforts.

  But this intense focus on development also produced a legacy of informal government meddling in the economy. The exploits of Pinchas Sapir were typical. During the 1960s and ’70s Sapir served at different times as minister of finance and minister of trade and industry. His style of management was so micro that Sapir established different foreign currency exchange rates for different factories—called the “100 exchange rate method”—and kept track of it all by jotting each rate down in a little black notebook. According to Moshe Sanbar, the first governor of the Bank of Israel, Sapir famously had two notebooks. “One of them was his own personal central bureau of statistics: He had people in every large factory reporting back to him on how much they sold, to whom, how much electricity was consumed, etc. And this is how he knew, well before official statistics were kept, how the economy was doing.”

  Sanbar also believes that this system could have worked only in a small, striving, and idealistic nation: there was no government transparency, but “all the politicians then . . . died poor. . . . They intervened in the market, and decided whatever they wanted, but at no point did anyone pocket even one cent.”6

  The Kibbutz and the Agriculture Revolution

  At the center of the first great leap was a radical and emblematic societal innovation whose local and global influence has been wildly disproportionate to its size: the kibbutz. Today, at less than 2 percent of Israel’s population, kibbutzniks produce 12 percent of the nation’s exports.

  Historians have called the kibbutz “the world’s most successful commune movement.”7 Yet in 1944, four years before Israel’s founding, only sixteen thousand people lived on kibbutzim (kibbutz means “gathering” or “collective,” kibbutzim is the plural, and members are called kibbutzniks). Created as agricultural settlements dedicated to abolishing private property and to complete equality, the movement grew over the following twenty years to eighty thousand people living in 250 communities, but this still amounted to only 4 percent of Israel’s population. Yet by this time the kibbutzim had provided some 15 percent of the members of Knesset, Israel’s parliament, and an even larger proportion of the IDF’s officers and pilots. One-quarter of the eight hundred IDF soldiers killed in the 1967 Six-Day War were kibbutzniks—six times their proportion in the general population.8

  Though the notion of a socialist commune might bring up images of a bohemian culture, the early kibbutzim were anything but. The kibbutzniks came to symbolize hardiness and informality, and their pursuit of radical equality produced a form of asceticism. A notable example of this was Abraham Herzfield, a kibbutz movement leader during the state’s early years, who thought that flush toilets were unacceptably decadent. Even in the poor and beleaguered Israel of the 1950s, when many basic goods were rationed, flush toilets were considered a common necessity in most Israeli settlements and cities. Legend has it that when the first toilet was installed on a kibbutz, Herzfield personally destroyed it with an ax. By the 1960s, even Herzfield could not hold back progress, and most kibbutzim installed flush toilets.9

  Kibbutzim were both hypercollective and hyperdemocratic. Every question of self-governance, from what crop to grow to whether members would have televisions, was endlessly debated. Shimon Peres told us, “In the kibbutzim, there were no police. There was no court. When I was a member, there was no private money. Before I came, there wasn’t even private mail. The mail came and everyone could read it.”

  Perhaps most controversially, children were raised communally. While practices varied, almost all kibbutzim had “children’s houses” where children lived and were tended to by kibbutz members. In most kibbutzim, children would see their parents for a few hours each day, but they would sleep with
their peers, not in their parents’ houses.

  The rise of the kibbutz is partly a result of agricultural and technological breakthroughs made on Israeli kibbutzim and in Israeli universities. The transition from the extreme hardships and unbending ideologies of the founders’ era, and from tilling the land to cutting-edge industry, can be seen in a kibbutz like Hatzerim. This kibbutz, along with ten other isolated and tiny outposts, was founded one night in October 1946 when the Haganah, the main pre-state Jewish militia, decided to establish a presence at strategic points in the southern Negev Desert. When daylight broke, the five women and twenty-five men who’d arrived to start the community found themselves on a barren hilltop surrounded by wilderness. A single acacia tree could be seen on the horizon.

  It took a year before the group managed to lay a six-inch pipe that would supply water from an area forty miles away. During the 1948 War of Independence, the kibbutz was attacked and its water supply cut off. Even after the war, the soil proved so salty and difficult to cultivate that by 1959 the kibbutz members had begun to debate closing Hatzerim and moving to a more hospitable location.

  But the community decided to stick it out since it became clear that the problems of soil salinity affected not only Hatzerim but also most of the lands in the Negev. Two years later, the Hatzerim kibbutzniks managed to flush the soil enough so that they were able to start growing crops. Yet this was just the beginning of Hatzerim’s breakthroughs for itself and the country.

  In 1965 a water engineer named Simcha Blass approached Hatzerim with an idea for an invention that he wanted to commercialize: drip irrigation. This was the beginning of what ultimately became Netafim, the global drip irrigation company.

  Professor Ricardo Hausmann heads the Center for International Development at Harvard University and is a former minister of development in the Venezuelan government. He is also a world-renowned expert on national economic development models. All countries have problems and constraints, he told us, but what’s striking about Israel is the penchant for taking problems—like the lack of water—and turning them into assets—in this case, by becoming leaders in the fields of desert agriculture, drip irrigation, and desalination. The kibbutz was at the forefront of this process early on. The environmental hardships the kibbutzim contended with were ultimately incredibly productive, much in the same way Israel’s security threats were. The large amounts of R&D spending deployed to solve military problems through high technology—including in voice recognition, communications, optics, hardware, software, and so on—has helped the country jump-start, train, and maintain a civilian high-tech sector.

  The country’s disadvantage of having some of its area taken up by a desert was turned into an asset. Looking at Israel today, most visitors would be surprised to discover that 95 percent of the country is categorized as semi-arid, arid, or hyperarid, as quantified by levels of annual rainfall. Indeed, by the time Israel was founded, the Negev Desert had crept up almost all the way north to the road between Jerusalem and Tel Aviv. The Negev is still Israel’s largest region, but its encroachment has been reversed as its northern reaches are now covered with agricultural fields and planted forests. Much of this was accomplished by innovative water policies since the days of Hatzerim. Israel now leads the world in recycling waste water; over 70 percent is recycled, which is three times the percentage recycled in Spain, the country in second place.10

  Kibbutz Mashabbe Sade, in the Negev Desert, went even further: the kibbutzniks found a way to use water deemed useless not once, but twice. They dug a well as deep as ten football fields are long—almost half a mile—only to discover water that was warm and salty. This did not seem like a great find until they consulted Professor Samuel Appelbaum of nearby Ben-Gurion University of the Negev. He realized that the water would be perfect for raising warm-water fish.

  “It was not simple to convince people that growing fish in the desert makes sense,” said Appelbaum, a fish biologist. “But it’s important to debunk the idea that arid land is infertile, useless land.”11 The kibbutzniks started pumping the ninety-eight-degree water into ponds, which were stocked with tilapia, barramundi, sea bass, and striped bass for commercial production. After use in the fishponds, the water, which now contained waste products that made excellent fertilizer, was then used to irrigate olive and date trees. The kibbutz also found ways to grow vegetables and fruits that were watered directly from the underground aquifer.

  A century ago Israel was, as Mark Twain and other travelers described it, largely a barren wasteland. Now there are an estimated 240 million trees, millions of them planted one at a time. Forests have been planted all over the country, but the largest is perhaps the most improbable of all: the Yatir Forest.

  In 1932, Yosef Weitz became the top forestry official in the Jewish National Fund, a pre-state organization dedicated to buying land and planting trees in what was to become the Jewish state. It took Weitz more than thirty years to convince his own organization and the government to start planting a forest on hills at the edge of the Negev Desert. Most thought it couldn’t be done. Now there are about four million trees there. Satellite pictures show the forest sticking out like a visual typo, surrounded by desert and drylands in a place where it should not exist. FluxNet, a NASA-coordinated global environmental research project, collects data from over a hundred observation towers around the world. Only one tower is in a forest in a semi-arid zone: Yatir.

  The Yatir Forest survives only on rain water, though only 280 millimeters (about eleven inches) of rain fall there each year—about a third of the precipitation that falls on Dallas, Texas. Yet researchers have found that the trees in the forest are naturally growing faster than expected, and that it soaks up about as much carbon dioxide from the atmosphere as lush forests growing in temperate climates.

  Dan Yakir is a scientist at the Weizmann Institute who manages the FluxNet research station at Yatir. He says that the forest not only demonstrates that trees can thrive in areas that most people would call desert, but that planting forests on just 12 percent of the world’s semi-arid lands could reduce atmospheric carbon by one gigaton a year—the annual CO2 output of about one thousand 500-megawatt coal plants. A gigaton of carbon would also amount to one of seven “stabilization wedges” that scientists argue are necessary to stabilize atmospheric carbon at current levels.

  In December 2008, Ben-Gurion University hosted a United Nations–sponsored conference on combating desertification, the world’s largest ever. Experts from forty countries came, interested to see with their own eyes why Israel is the only country whose desert is receding.12

  The Israeli Leapfrog

  The kibbutz story is just a part of the overall trajectory of the Israeli economic revolution. Whether it was socialist, developmentalist, or a hybrid, the economic track record of Israel’s first twenty years was impressive. From 1950 through 1955, Israel’s economy grew by about 13 percent each year; it hovered just below 10 percent growth annually into the 1960s. Not only did Israel’s economy expand, it experienced what Hausmann calls a “leapfrog,” which is when a developing country shrinks its per capita wealth gap with rich first-world countries.13

  Whereas economic growth periods are common in most countries, leapfrogs are not. A third of the world’s economies have experienced a growth period in the past fifty years, but fewer than 10 percent of them have had a leapfrog. The Israeli economy, however, increased its per capita income relative to the United States’ from 25 percent in 1950 to 60 percent in 1970. That means Israel more than doubled its living standard relative to that of the United States within twenty years.14

  During this period, the government made no effort to encourage private entrepreneurship and, if anything, was rhetorically hostile to the notion of private profit. Though some of the government’s political opponents did begin to oppose its heavy economic hand and anti–free market attitudes, these critics were a small minority. If the government had valued and sought to ease the path for private initiative, the econ
omy would have grown even faster.

  In retrospect, however, it is clear that Israel’s economic performance occurred in part because of the government’s meddling, and not just in spite of it. During the early stages of development in any primitive economy, there are easily identifiable opportunities for large-scale investment: roads, water systems, factories, ports, electrical grids, and housing construction. Israel’s massive investment in these projects—such as the National Water Carrier, which piped water from the Sea of Galilee in the north to the parched Negev in the south—stimulated high-velocity growth. Rapid housing development on kibbutzim, for example, generated growth in the construction and utilities industries. But it is important not to generalize: many developing countries engaged in large infrastructure projects waste vast amounts of government funds due to corruption and government inefficiencies. Israel was not a perfect exception.

  Though infrastructure projects were perhaps the most visible element, even more striking was the deliberate creation of industries, as entrepreneurial projects, from within the government. Shimon Peres and Al Schwimmer, an American who helped smuggle airplanes and weapons to Israel during the War of Independence, together dreamed up the idea of creating an aeronautics industry in Israel. When they pitched the idea within the Israeli government, in the 1950s, reactions ranged from skepticism to ridicule. At the time, staples like milk and eggs were still scarce and thousands of just-arrived refugees were living in tents, so it is not surprising that most of the ministers thought that Israel could neither afford nor be capable of succeeding in such an endeavor.

  But Peres had David Ben-Gurion’s ear, and convinced him that Israel could start repairing surplus World War II aircraft. They launched an enterprise that at one point was Israel’s largest employer. Bedek eventually became Israel Aircraft Industries, a global leader in its field.