Tom Friedman, Israel’s Dr. Pangloss

You remember that famous quote: “Everything for the best in this best of all possible worlds.” Well, that defines Tom Friedman’s perspective on Israel and his perspective on the ability of global trade to triumph over the all the world’s ills. Ostensibly, the subject of Friedman’s column in today’s NY Times was to compare the indomitable economic engine Israel has become with the lumbering dinosaur that is Iran. Friedman’s proof positive was Iscar, one of the newer additions to Warren Buffett’s stable of companies. Here is some of his cheerleading:

…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. While you were sleeping, Israel has gone from oranges to software, or as they say around here, from Jaffa to Java.

…Wertheimer [Iscar’s owner] is famous for staying close to his customers and the latest technologies. “If you sleep on the floor,” he likes to say, “you never have to worry about falling out of bed.”

That kind of hunger explains why, in the first quarter of 2008, the top four economies after America in attracting venture capital for start-ups were: Europe $1.53 billion, China $719 million, Israel $572 million and India $99 million, according to Dow Jones VentureSource. Israel, with 7 million people, attracted almost as much as China, with 1.3 billion.

This kind of Friedmanesque prose makes me feel like I’m reading the work of a good advertising copywriter.  He’s something like the Hollywood screenwriter assigned to work in product placement and script plugs on behalf of the film’s corporate sponsors.  “From oranges to software, from Jaffa to Java.” It sounds so bubbly, so trite and so superficial. Is Friedman telling us anything new, useful or important? Well, sort of. He’s basically telling us that Israel has a lot of things going for it economically.  That’s good as far as it goes.

But what is Tom leaving out? A whole lot, it turns out. I’ve been keeping this important report in abeyance, not knowing how or when I would write about it. Now is the time. Rory McCarthy, writing in The Guardian, reports that Israel’s Adva Center released a study, The Cost of Occupation – The Burden of the Israeli-Palestinian Conflict (pdf), documenting the costs to the Israeli economy of its Occupation. The results are staggering:

Israel’s occupied territories and conflict with the Palestinians has undermined the country’s economic growth and has cost at least an extra 36.6bn shekels (£5.7bn) in defence spending over the past two decades, according to an Israeli thinktank.

Calculations by the Adva Centre, an independent policy centre in Tel Aviv, suggest Israel’s economy has been held back, inequality within the country has grown and there have been significant government budget cuts to pay for mounting defence spending.

Adva openly admits that its findings, contained in a new report published today and entitled The Cost of Occupation, challenge the widely received opinion that Israel’s economy is successful despite the conflict: economic growth last year reached 5.3% and was above 5% for the previous two years.

However, Adva’s report said: “The truth is that the conflict with the Palestinians is like a millstone around the neck of Israel: it undermines economic growth, burdens the budget, limits social development, sullies its vision, hangs heavy on its conscience, harms its international standing, exhausts its army, divides it politically, and threatens the future of its existence as a Jewish nation-state.”

Adva’s figures show Israel’s economy grew 43% between 1997 and 2006, well behind world economic growth during that period of 67% and growth of 68% in the US and in the EU.

Although it is almost impossible to calculate an accurate cost of the occupation of the Palestinian territories because much of the defence budget is secret, Adva said that additions to the defence budget to pay for increased military activity in the territories came to 36.6bn shekels between 1989 and 2008.

That amount is greater than the government’s budget for elementary, secondary and tertiary education in Israel this year, it said.

In addition, the cost of the withdrawal of Israeli settlers from Gaza in 2005 came to 9bn shekels and the cost of the West Bank barrier, which Israel is now building, is estimated at an extra 13bn shekels.

The problem with Friedman’s warped view is that he’s trying to make you believe that Israel’s economy is humming along at warp speed with nary a care in sight. But he’s not dealing with a full deck, as the Adva report makes clear. And the next time one of these “all’s for the best in this best of all possible Israels” partisans tries to pass off Friedman’s views as gospel, remember to tell them that Adva estimates Israel diverted $500 million per year from all that wonderful economic development in order to fund the Occupation. Tell them that Israel, no matter how strong it is, could be far stronger without that “millstone” around its neck. Tell them that the gap between rich and poor, Arab and Jew, religious and secular, might have been far less with that additional economic development. Tell them that many of those Israelis who fall beneath the poverty line might have found jobs had these economic limitations not been imposed:

Adva said that one in every five Israeli families now ranked as poor, against one in every 10 in the 1970s, which it said was partly a result of the conflict and partly due to the arrival of hundreds of thousands of immigrants from the Soviet Union and Ethiopia who have struggled to find work. Social security payments, particularly child allowances, unemployment compensation and income maintenance, were cut significantly between 2001 and 2005, at least in part because of rising defence costs.

Tom Friedman is a smart guy. But he’s too smart by half if he thinks the pablum he published today tells anywhere near the whole story of Israel’s economic situation.