The Predictable Fate of Kibbutzim

In a blog post not long ago, I commended the enormous strides in economic growth that Israel has made through cutting edge innovation and formation of firms that create technology. In fairness, while applauding the lessons that Israel's development miracle implied, one should have mentioned the anachronism inherent in its Kibbutz settlements. In an article in the Israeli paper Haaretz here, it is reported that the Kibbutizm system has finally collapsed in spite of great subvention from over at least three decades.

Omer Moav, a professor of economics explains that most of the Kibbutz were doomed to failure because they failed to account for individual quest for advancement. So while they provided security and stable social structures, they suffered a natural erosion by the departure of younger members. Over time, it was palpable that in spite of the ideological inclination that some may have held, the collapse of the socialist system before their eyes was the irrefutable signal of the need to change. If only those who bear political influence could be easily persuaded by empirical evidence!

Israel's Miracle in Development Economics

The small country of Israel is one that many people have political opinions on and perhaps the one that few understand pretty well. However, whenever people talk of the countries that have pulled off economic miracles, I am wont to think of Hong Kong, Singapore and Ireland. Lately, the focus has turned to India and China with huge expectations of their longer-term development.

I have just read for the third time this well-told piece analyzing the genesis of Israel's development miracle from a relatively backward socialist country into the most sophisticated country in the Middle East today. Writing in City Journal, it is clear to me that George Guilder has taken an analytical survey of Israel's technology driven growth.

To my mind, the elaborate survey of Israel's economy shows that well thought reforms based on rational economics always pays off in a big way. It is not by default that Israel has managed to survive in the hostile neighbourhood while maintaining a far higher standard life for its citizens in comparison to other Middle Eastern nations. And it is clear that as it's private sector races forward with more investment in technology backed by solid economic reforms, it will continue to be formidable as a military adversary.

As a small country, the arrival of a reform-minded government ensured that new businesses based on new models emerged and naturally supplanted state supported competitors. This was closely followed by venture capital funds which have made Israel a leader in total investments after adjustment for population. It is also clear that success in the semiconductor design business opens up opportunities in biotechnology and software development.

In conclusion, unlike the author, I agree that Israel's performance over the last two decades should form a chapter in development economics course readers in addition to case studies for business schools. As a country, its business leaders are right on top of their game and are ensuring that the country will continue to be on the cutting edge of technology and therefore prosperous. To my mind, similarly clear thinking should be applied to political reforms so that the entire Middle east needs gets an example from this enigma.