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.