Wednesday, February 28, 2007

Israel: Silicon Valley in South Central LA?

David Seaton's News Links
I'm not a fan of Thomas Friedman, but he was a correspondent in Israel for many years and knows that country intimately. His column in today's NYT is much more like the kind of thing you can read in the Israeli press. This type of frankness about Israel and its society is almost never seen in America.

In the column he gives what I feel are the keys to the dead end situation Israel finds itself in today.

The Oslo "peace process" coincided with birth of the "new economy" (globalization + high tech) and Israel has become one of the leaders in the high technology sector and in the process has become a wealthy country. The idea was that having gotten a peace deal with the Palestinians, Israel would become a combination of Club Med and Silicon Valley, also enjoying a cozy relationship with the Russian Oligarchs and their "creative" financing. Now? Try to imagine Monaco somewhere on the border of Afghanistan and Pakistan and you'll get the idea of far the dream has gone adrift.

Although they are both in California, Silicon Valley cannot be established in South Central Los Angeles. As I have been pointing out the last few weeks, all Israel's newfound wealth is produced by very few people and most of the work they do could be moved out of the country, to another set of computers, in a weekend, without skipping a beat... and if the situation continues to deteriorate, that is exactly what could happen. That would be the end. That explains a lot of things that are happening in the Middle East... and in Washington. DS

Thomas Friedman: Outsource the Cabinet? - New York Times
Abstract: Israel’s police commissioner just resigned after an investigative committee criticized his actions in a 1999 case involving an Israeli crime family. His resignation came in the wake of a rape allegation against Israel’s president, Moshe Katsav, as well accusations of corruption against Prime Minister Ehud Olmert and the suspension of his office director, whose house arrest is part of a widening investigation into the Tax Authority — whose chief also just resigned under a cloud. The finance minister is being questioned about embezzlement at a nonprofit, and the former justice minister has been convicted of indecent behavior for kissing a female soldier against her will. There’s more, but I don’t have space. Here is the really bizarre thing: Israel’s economy — particularly its high-tech sector — has never been better. “The economy is blooming, growing in the last quarter of 2006 by almost 8%,” said Sever Plocker of the Yedioth Ahronoth newspaper, who is one of Israel’s top economics writers. “Foreign direct investment is flowing in at unprecedented rate — $13.4 billion in 2006. The high-tech sector exports are approaching $18 billion, and the stock exchange is at an all-time high. The shekel is stronger than ever, the inflation nonexistent. Interest rates are lower than in U.S. or Britain, the budget deficit less than 1% of G.D.P., and the balance of payments is positive, which means Israel achieved its economic independence and is actually a net creditor to the rest of the world. “In short, we never had it so good in the economy.” Yossi Vardi, one of the founding fathers of Israel’s high-tech industry, told me that in the last month alone, four start-ups that he was an investor in were sold: one to Cisco, one Microsoft, and two to Israeli companies. “In the last nine months I’ve probably invested in at least nine new companies,” added Mr. Vardi, all started by “kids 25 to 35 years old.” So maybe Israel doesn’t need any cabinet ministers? It’s not so simple. When the cabinet is so weak, no peace deal is likely with the Palestinians because no leader has the strength to push it through — and that is a ticking time bomb. Moreover, high-tech doesn’t employ a lot of people, and if the cabinet that should be looking out for the rest of Israel is hobbled — another bomb is ticking. “Almost half of the population does not enjoy the boom,” Mr. Plocker said, noting these statistics: The unemployment rate is 8.3 percent. Israel’s poverty rate is still the highest in the West, by far: 24.4 percent of the entire population and 35.2 percent of all children are described as poor, living under the official “poverty line.” In the Arab and the ultra-Orthodox Jewish sectors, child poverty is especially high: more than 50 percent. The real income of the poorest quarter of Israelis is lower than six years ago. READ IT ALL(bootleg)

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