For Tom Friedman to Win His Bet, Friedmanism Must Go

Gershom Gorenberg

Sometimes when I read Tom Friedman, I’m so taken by his bubbly optimism, I want to drink whatever he’s been sipping. Especially when he’s bubbling about Israel, as in “People vs. Dinosaurs” . Says Tom: In contrast to Mahmoud Ahmadinejad, who thinks that Israel is in its last days, zillionnaire investor Warren Buffett is putting lots of money on Israel’s rosy future. And Tom is betting with Buffet.

In principle, I’d agree. But for Buffet to hit the jackpot, Israel’s government will have to reject Friedmanism – all of Milton Friedmanism, and some of Tom Friedmanism.

Tom explains that Israel’s economy is driven by high-tech and innovation:

From outside, Israel looks as if it’s in turmoil, largely because the entire political leadership seems to be under investigation. But Israel is a weak state with a strong civil society. The economy is exploding from the bottom up. Israel’s currency, the shekel, has appreciated nearly 30 percent against the dollar since the start of 2007.

The reason? Israel is a country that is hard-wired to compete in a flat world. It has a population drawn from 100 different countries, speaking 100 different languages, with a business culture that strongly encourages individual imagination and adaptation and where being a nonconformist is the norm.

As for occasional missile showers disrupting the economy, Tom quotes Israeli businessman Eitan Wertheimer, who quotes Buffet as saying, “‘I’m not interested in the next quarter. I’m interested in the next 20 years.”

This is sensible. But since I haven’t been sharing Tom’s bottle, I’ll point out some reasons to hedge the bets.

First, as Haim notes in his last post , Israelis are losing confidence in their political institutions. In fact, if the prime minister or the Knesset were stocks, their price would be near zero. Among the underlying causes for the devaluation of politics is that this is a small country, and one influenced by the culture of a hegemonic power – today, America. Since the 80s, the American market attitude of “greed is good” has replaced the old public-service ethic, and a small country’s limited resource of bright talented people has gone to business rather than politics. Those who do go into politics apparently expect to live like businesspeople – and some businesspeople are happy to make it possible. (See under: Olmert, investigations .) But when there’s lack of confidence in the political system, investors will eventually get wary of instability. Ignoring this risk, Tom is being entirely too sanguine.

Besides that, businessman Buffet is unusual these days in taking a 20-year view of investment. The Israeli government is taking the opposite approach. Committed to free-market fundamentalism, it is constantly trying to shrink the state’s role – and thereby ignoring the state’s duty to make long-term investments. As Tom’s riff makes clear, Israel’s greatest resource is brainpower. But that resource must be developed through education. Instead, the government continues to let the education system crumble. Meanwhile, Finance Minister Roni Bar-On has just announced his plan for new tax cuts. The government is flush, he’s saying, it can give out money. This is the equivalent of an oil company handing out dividends while its reserves run down and its pumps need repair. If the government is flush, why doesn’t it cut class sizes, or boost pay to attract people to teach, or expand school libraries, or provide tutors to kids who might make it to university with some help, or cut university tuition to 0 shekels per year, with generous scholarships for living expenses to students from poor homes? Education is a job for Big Government, long may it live.

Right now, Israeli high-tech is powered by investments made in education many years ago. Some of those investments were made by Israeli parents who got tutors for their kids. A large piece of the investment was made by a different government – the evidence is the Russian accent of many software engineers. But that source of educated personpower has run out.

Mr. Bar-On: Banish Milton Friedman and Ronald Reagan (the world champ at cutting school budgets) from your mind. Look at how investments will pay in 20 years, and put cash into schools and universities.

As for Tom Friedmanism: Our bubbly columnist loves high-tech and the globalized economy. But as I’ve written before , the high-tech and financial economy has boosted only as small portion of Israel, in what I call the Republic of Tel Aviv. The Other Israel has seen its industries destroyed by global competition. And it’s also watching as its culture and identity comes under steady assault from the globalization of culture and consumption. These are the precursors of nationalist and religious radicalization, and of social conflict. Which isn’t good for business, Tom.

(Neither is that strong shekel you rave about. It’s actually horrible for exports, including high-tech. And it’s killing NGOs that depend on dollar donations – NGOs that have been taking up the slack for government neglect of education and social needs.)

Even with the best education, not everyone is going to become a software engineer. For Israel to remain healthy, its government will have to help low-end industries that can provide jobs and self-respect to the other Israelis. It will have to support local culture. It might need to restrict the extent to which global chains can take over the main streets of our towns, eliminating local identity. It will have to provide some balance to globalization. Along with banishing Milton, it will have to be cautious about Tom Friedman. Otherwise Buffet will lose his bet, and since he’s betting on my country, I’d like to see him win.

3 thoughts on “For Tom Friedman to Win His Bet, Friedmanism Must Go”

  1. Nice piece. Friedman is a real puzzle to me. He spent several years in Lebanon as a journalist. Before the civil war there broke out in 1975, Lebanon was the most prosperous Arab state and the people there had considerable freedom, including freedom of the press, a very rare commodity in the Arab world, although it had a bizarre political system which was a cross between feudalism and democracy. In spite of all these good things going for it, things that Friedman can relate to in his materialist-economic outlook on life, this relatively idyllic society tore itself to shreds in a blood civil war which ended up being a primitive, tribal conflict. In other words, all the supposed economic interests that everyone had in peace and inter-communal harmony fell apart. Thus Friedman’s belief that peace will assured if everyone has joint economic interests that they don’t want endangered simply isn’t true.
    Friedman saw all this with his own eyes and yet it seems he didn’t learn anything from it.

    The same thing happened here in Israel. Everyone said that once the Palestinians had something to lose, they would opt for peace. In 1999, there was a construction boom for hotels and other tourist facilities in the Palestinian territories. At the same time, political tension was building up. I recall pro-Oslo people saying that there wouldn’t be an outbreak of violence because if they were planning such a thing, why would they be endangering all the building they were doing? Yet, Arafat decided to go ahead with his suicide bomber war anyway, in spite of the new hotels that would remain empty.

    Another example is Yugoslavia….Tito built an multi-ethnic society where people worked together and there were joing economic interests, yet when various demagogues went up and decided to play the ethnic resentment card, the decades of peaceful relations between the groups went up in smoke.

    Tom should understand that economics, while important, does not determine everything. (Maybe he should get his nose out of the business pages once in a while and read the postings here about the importance of the Torah).

  2. Tom Friedman is most certainly wrong when he says:

    “The economy is exploding from the bottom up. […] Israel is a country that […] a business culture that strongly encourages individual imagination and adaptation and where being a nonconformist is the norm.”

    Israeli tax and labor regulations make life hell for anyone trying to set up a small business. While the top 19 families earn a quarter TRILLION shekels a year between them, great swaths of the masses live on $600 – 1,200 / month. The Communist/Socialist system that Ben Gurion put into place pushes people into dependancy on public welfare – which is the aim of the Communist/Socialist system in the first place.

    Tom F. is today what he has always been – an entertaining writer of remarkable fiction posing as fact. This is not the stuff of good journalism.

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