The Yatir Forest survives only on rain water, though only 280 millimeters (about eleven inches) of rain fall there each year—about a third of the precipitation that falls on Dallas, Texas. Yet researchers have found that the trees in the forest are naturally growing faster than expected, and that it soaks up about as much carbon dioxide from the atmosphere as lush forests growing in temperate climates.
Dan Yakir is a scientist at the Weizmann Institute who manages the FluxNet research station at Yatir. He says that the forest not only demonstrates that trees can thrive in areas that most people would call desert, but that planting forests on just 12 percent of the world’s semi-arid lands could reduce atmospheric carbon by one gigaton a year—the annual CO2 output of about one thousand 500-megawatt coal plants. A gigaton of carbon would also amount to one of seven “stabilization wedges” that scientists argue are necessary to stabilize atmospheric carbon at current levels.
In December 2008, Ben-Gurion University hosted a United Nations–sponsored conference on combating desertification, the world’s largest ever. Experts from forty countries came, interested to see with their own eyes why Israel is the only country whose desert is receding.12
The Israeli Leapfrog
The kibbutz story is just a part of the overall trajectory of the Israeli economic revolution. Whether it was socialist, developmentalist, or a hybrid, the economic track record of Israel’s first twenty years was impressive. From 1950 through 1955, Israel’s economy grew by about 13 percent each year; it hovered just below 10 percent growth annually into the 1960s. Not only did Israel’s economy expand, it experienced what Hausmann calls a “leapfrog,” which is when a developing country shrinks its per capita wealth gap with rich first-world countries.13
Whereas economic growth periods are common in most countries, leapfrogs are not. A third of the world’s economies have experienced a growth period in the past fifty years, but fewer than 10 percent of them have had a leapfrog. The Israeli economy, however, increased its per capita income relative to the United States’ from 25 percent in 1950 to 60 percent in 1970. That means Israel more than doubled its living standard relative to that of the United States within twenty years.14
During this period, the government made no effort to encourage private entrepreneurship and, if anything, was rhetorically hostile to the notion of private profit. Though some of the government’s political opponents did begin to oppose its heavy economic hand and anti–free market attitudes, these critics were a small minority. If the government had valued and sought to ease the path for private initiative, the economy would have grown even faster.
In retrospect, however, it is clear that Israel’s economic performance occurred in part because of the government’s meddling, and not just in spite of it. During the early stages of development in any primitive economy, there are easily identifiable opportunities for large-scale investment: roads, water systems, factories, ports, electrical grids, and housing construction. Israel’s massive investment in these projects—such as the National Water Carrier, which piped water from the Sea of Galilee in the north to the parched Negev in the south—stimulated high-velocity growth. Rapid housing development on kibbutzim, for example, generated growth in the construction and utilities industries. But it is important not to generalize: many developing countries engaged in large infrastructure projects waste vast amounts of government funds due to corruption and government inefficiencies. Israel was not a perfect exception.
Though infrastructure projects were perhaps the most visible element, even more striking was the deliberate creation of industries, as entrepreneurial projects, from within the government. Shimon Peres and Al Schwimmer, an American who helped smuggle airplanes and weapons to Israel during the War of Independence, together dreamed up the idea of creating an aeronautics industry in Israel. When they pitched the idea within the Israeli government, in the 1950s, reactions ranged from skepticism to ridicule. At the time, staples like milk and eggs were still scarce and thousands of just-arrived refugees were living in tents, so it is not surprising that most of the ministers thought that Israel could neither afford nor be capable of succeeding in such an endeavor.
But Peres had David Ben-Gurion’s ear, and convinced him that Israel could start repairing surplus World War II aircraft. They launched an enterprise that at one point was Israel’s largest employer. Bedek eventually became Israel Aircraft Industries, a global leader in its field.
During this stage of Israel’s development, private entrepreneurs may not have been essential because the largest and most pressing needs of the economy were obvious. But the system broke down as the economy became more complex. According to Israeli economist Yakir Plessner, once the government saturated the economy with big infrastructure spending, only entrepreneurs could be counted on to drive growth; only they could find “the niches of relative advantage.”15
The transition from central development to a private entrepreneurial economy should have occurred in the mid-1960s. The twenty-year period from 1946 through 1966, when most of the large-scale infrastructure investments had been made, was coming to an end. In 1966, with no more frothy investment targets, Israel experienced for the first time nearly zero economic growth. This should have convinced Israel’s government to open the economy to private enterprise. But instead, needed reforms were staved off by the Six-Day War. Within one week of June 6, 1967, Israel had captured the West Bank, Gaza Strip, Sinai Peninsula, and Golan Heights. Collectively, the territory was equal to more than three times the size of Israel.
Suddenly the Israeli government was once again busy with new large-scale infrastructure projects. And since the IDF needed to establish positions in the new territories, massive spending was necessary for defense installations, border security, and other costly infrastructure. It was another giant economic “stimulus” program. As a result, from 1967 to 1968, investment in construction equipment alone increased by 725 percent. The timing of the war reinforced the worst instincts of Israel’s central planners.
Israel’s “Lost Decade”
Still, Israel’s economy was living on borrowed time. Another war six years later, the Yom Kippur War of 1973, did not yield the same economic boost. Israel suffered heavy casualties (three thousand fatalities and many more wounded) and enormous damage to its infrastructure. Forced to mobilize large numbers of reserves, the IDF pulled most of the labor force out of the economy for up to six months. The effect of such a massive and protracted call-up was jarring, paralyzing companies and even entire industries. Business activity came to a halt.
In any normal economic environment, private incomes among domestic workers would have experienced a corresponding decline. But in Israel they did not. Instead of allowing salaries to fall, the government artificially propped them up through a vehicle that resulted in extremely high levels of public debt. In order to try to offset the ballooning debt, every tax rate—including on capital investment—was raised. Short-term and high-priced debt was used to finance the deficit, which in turn increased interest payments.