Israel Banks On Its Human Potential

The Israeli economy--and the nation of Israel itself--is at a turning point, and that mayhave less to do with the end of the Gulf War than the end of the Cold War.

The defeat of Iraq was essential for Israel, of course. But there’s no peace dividend here. An overriding fact of the war was that Scud missiles hit this small, embattled country. So now Israel must contemplate additional defense expenditures for anti-missile systems.

Negotiations toward peace with its Arab neighbors could begin. But even if peace broke out tomorrow--and the Palestinian uprising called intifada were to cease--Israel would have to maintain its current defense spending for four or five years just to make sure peace was genuine. At 17% of its gross national product, Israeli defense spending is proportionately three times the U.S. level.

So few people here talk about the Gulf War. Rather, the focus of Israel’s hopes is the mass immigration from the Soviet Union that has brought 300,000 new residents so far and may bring 1 million by 1994.

“That’s our main story,” says Amos Rubin, economic adviser to Prime Minister Itzhak Shamir. “How shall we succeed in creating a fast enough business expansion to utilize the talent that is coming here?”

It’s a bigger challenge than many Americans realize. In welcoming 1 million newcomers, Israel is expanding its 4.5 million population by 22% in only five years. That’s the equivalent of the United States taking in more than 50 million people in an incredibly short time.

We would find it daunting, just as Germany--with 60 million people--is struggling to absorb 17 million East Germans. And Germany is rich. Israel is not rich. Its annual output of goods and services totals less than $50 billion, about $9,000 for each Israeli, or roughly half the American or Japanese per capita gross national product.

Yet Israelis are rejoicing at the influx of immigrants, whose welfare initially will impose additional taxes on an already heavily taxed people. Their joy tells you a lot about Israel, and about what is truly valuable in a modern economy.

The immigrants are being welcomed because great numbers of them are technically educated, skilled people. They are like the Israelis themselves, who have a higher proportion of their work force in scientific and technical pursuits than even the United States and Japan.

“The research and development level in Israel is very good and about to get better,” says David Rosenberg, a Jerusalem-based American who publishes the Israel Business Report newsletter.

Because of its skilled people, tiny Israel has world class capabilities in advanced electronics, biotechnology and computer sciences. That’s why International Business Machines, Intel, Motorola and other U.S. firms have design subsidiaries here. It’s why Luz Industries was able to design and develop a prototype electric car battery here.

Accordingly, to absorb the immigrants, Israel plans to do more of what it already does well. To attract high-tech foreign companies, and encourage domestic ones, the Israeli government will guarantee two-thirds of any new venture’s investment. It reckons it needs $50 billion of such investment in the next five years, and is asking U.S. government help in borrowing on world markets.

At the outset, confidence is high. Microsoft, the world software leader, has just announced a venture in Israel. And government officials talk of the economy growing 10% a year, as it used to do in Israel’s early days in the 1950s.

But patience is advisable, says Dov Frohman, chairman of Intel of Israel and the electronics pioneer who first attracted Silicon Valley investment to this country. “It will take four to five years” for the immigrants to be absorbed and make a big difference, he says.

Meanwhile, there could be disappointments. Some scientifically trained Soviet emigres are now working as laborers on construction sites in Israel, or they are mopping floors at $1.68 an hour.

Also, not all the immigrants are young and fit. Some are elderly, and some are sick, with diseases spawned by the Chernobyl nuclear accident back in the Ukraine.

Still, Israel is welcoming them all because it sees in their human potential a way out of its recent economic doldrums--the economy has been in recession and was hobbled for most of the 1980s by both inflation and slow growth.

And beyond the economy, this fundamentally idealistic and democratic country--the only democracy in the Middle East--may see in the immigrants a renewal of its own purpose.

Israel has troubles. The intifada , although reduced in force, simmers like a low-grade Northern Ireland with car burnings and occasional killings. The Arab Middle East is no less hostile. And the peace process seems stalled, with Washington blaming Israel as well as its enemies for the impasse.

Yet in Israel, influential people are not gloomy and see peace negotiations as a real possibility. “Israeli attitudes have changed in the last 20 years,” says one man. “A lot of people have seen many wars and now want peace negotiations.”

And America could help get things moving, although perhaps not the American government, says Ze’ev Schiff, defense editor of the newspaper Ha’aretz and co-author of “Intifada” and “Israel’s Lebanon War,” two widely admired books.

“The U.S. government is paralyzed on the Middle East,” says Schiff. “But the American Jewish community and its leadership, they can do more than (Secretary of State James A.) Baker, believe me.”

That’s a worthy assignment. “If negotiations begin, I don’t care if they last 25 years,” says Intel’s Frohman. “Things would improve if talks began, and the leverage of peace in this region would be tremendous.”