I wrote this piece 8 years ago. It is still relevant today and many of my predictions have come to pass.

Towards a fully sovereign Israel

Imagine ....

Just imagine for a moment that there was a nation upon which the world depended for its future prosperity more than any other; a nation that held the world's largest concentration of the natural resource most crucial to the economic development of the world.

Imagine that this nation had one of the fastest growing economies in the western world and was the only advanced economy without the serious demographic problem of below replacement level birth rates and a rapidly aging population.

Imagine also that this nation had the most powerful and technologically advanced military in three continents and sat astride the world's most important trade routes with the ability to turn off the world's fuel supply at will and bring all other advanced economies to their knees, yet was not itself heavily dependent on this fuel supply.

This imaginary nation is also the world leader in inventing and producing the most advanced military technologies which are changing the face of warfare. Of course it also boasts a powerful nuclear deterrent, its people having been the ones that invented nuclear technology in the first place.

In this imaginary world such a powerful and important nation would be respected, and a little feared, by all the other nations of the earth. Its sovereignty would be sacrosanct and other nations wouldn't dare to interfere in its domestic affairs or publicly criticise its dealings with its internal challenges but would instead admire its achievements and seek to emulate them.

If this imaginary nation were attacked by terrorists who slaughtered thousands of innocents simply because they were citizens of this great nation, the nations of the world would rally around and pledge their allegiance and support to whatever action was needed to defeat the terrorists.

Now you may be asking yourself, what nation am I talking about? Does this imaginary nation really exist? Is it the United States? China? Japan? India? Or perhaps an asian tiger: Singapore, Korea Taiwan?
What if I told you that this nation was actually the Jewish State – Israel?

I know many readers are scoffing, but before you dismiss my claim, lets examine the facts, one by one.

The most crucial natural resource

The natural resource most crucial to the economic development of the world is not oil; after all it is merely a popular fuel. Oil use is crucial to the current lifestyle of the citizens of most advanced economies but it does not create economic development. Indeed the countries with the greatest amount of oil are often the least economically advanced countries, as its possession facilitates autocracy and dictatorship and its boom-bust cycles starve other economic sectors of capital.

Nor is this natural resource any other base commodity that is dug out of the earth or harvested from plant or animal. No this resource is the most advanced product of the highest life form that graces our planet. It is human genius, distilled as the innovation, entrepreneurship and scientific leadership with which the Jewish people have blessed the world for over a century and which today has its greatest concentration in the Jewish State.

"[T]he achievements of modern science are largely the expression of Jewish genius and ingenuity. If 26 percent of Nobel Prizes do not suffice to make the case, it is confirmed by 51 percent of the Wolf Foundation Prizes in Physics, 28 percent of the Max Planck Medailles and 38 percent of the Dirac Medals for Theoretical Physics, 37 percent of the Heineman Prizes for Mathematical Physics, and 53 percent of the Enrico Fermi Awards." George Gilder, The Israel Test (Richard Vigilante Books, 2009)

“[K]ey economic metrics demonstrate that Israel represents the greatest concentration of innovation and entrepreneurship in the world today.” Dan Senor & Saul Singer, Start-up Nation: The story of Israel's Economic Miracle, (New York, Hachetter Book Group, 2009)

“Since 1990 Israel has become the most important center for high technology innovation in the world with the highest density of start-up companies, the largest number of NASDAQ listed companies (outside the US), the highest civilian R&D expenditure, 31% of global VC expenditure (and by far the highest per capita).” Dan Senor & Saul Singer, Start- up Nation: The story of Israel's Economic Miracle, (New York, Hachetter Book Group, 2009)

Moreover Israel is “mission critical” to the continued economic success of the brand name American high-tech companies whose products underpin our modern technological existence.

"Multinationals have set up shop in places like India and Ireland, too. “But we don’t set up our mission critical work in those countries,” an American executive from eBay told us. “Google, Cisco, Microsoft, Intel, eBay . . . the list goes on. The best-kept secret is that we all live and die by the work of our Israeli teams. It’s much more than just outsourcing call centers to India or setting up IT services in Ireland. What we do in Israel is unlike what we do anywhere else in the world.””
Dan Senor & Saul Singer, Start-up Nation: The story of Israel's Economic Miracle, (New York, Hachetter Book Group, 2009)

“The [real] case for Israel [is] as the leader of human civilization, technological progress, and scientific advance.” George Gilder, The Israel Test (Richard Vigilante Books, 2009)

“On a planet where human life subsists upon the achievements of human intellect and enterprise, Jews are crucial to the future of the [human] race.” George Gilder, The Israel Test (Richard Vigilante Books, 2009)

Economics

As a result of this technological and entrepreneurial leadership, Israel has been the second fastest growing western economy since 1990 [1] (behind Ireland) and one of only two OECD economies (the other Australia) [2] to record growth in 2009. Unlike some of its competitors in the economic growth stakes, Israel's growth rate has proved resilient through numerous economic crises (including the tech wreck of 2000/01 and the 2009 global financial crisis) two wars (Lebanon 2006 & Gaza 2009) and terrorism.

It is telling that the growth of other countries which exhibited high growth over the last 20 years (eg Ireland, Greece, Iceland and Dubai) has collapsed into near national bankruptcy as the artificiality of their debt based economic model was exposed by the global financial crisis. Only innovation and entrepreneurship can create strong, sustainable economic growth over the long term.

Demographics

Israel is the only advanced economy with a healthy demographic profile and fertility rate of 2.9 births per woman, well above replacement level of 2.1 births per woman. The next closest country, the United States, has a sustainable if slightly below replacement level fertility rate of 2.04 births per woman. Australia, New Zealand, Ireland and France maintain fertility rates between 1.8 and 1.9 births per woman which are economically sustainable only while high immigration rates can be maintained [3]. After that the fertility rate of all other advanced economies falls away to levels that are economically and demographically unsustainable. [4]

These other advanced economies face bankruptcy, then extinction, with fertility rates so far below replacement level (1.1 – 1.5 births per woman) that an ever decreasing tax base of working age citizens will be called upon to support an ever increasing proportion of pensioners as well as maintaining an expensive infrastructure designed for a larger population. Already in Japan, Italy, Russia, Germany, South Korea and Singapore the situation of four grandparents, two parents and one grandchild is the norm. Their populations are on track to halve every generation with devastating consequences for their economies and ultimately the extinction of the native people of these countries and their replacement by sub-cultures (often Muslim immigrants) with a much higher birth rate.

Contrast this with the norm in Israel of four grandparents, six parents and nine grandchildren and the Jewish ultra- orthodox norm (fertility rate of 8 births per woman) of four grand parents, sixteen parents and sixty four grandchildren and it is easy to see which countries and cultures have a future and which do not.

These demographic profiles also critically affect the ability of countries to produce the innovation and entrepreneurship that is essential to economic growth because young people are the only ones who have the energy, motivation, lack of baggage and fresh perspective to take risks and try new things. Equally, the dramatic reduction in the number of military age citizens each generation will have a severe adverse affect on these nations' ability to defend themselves against external and internal threats. Pensioners do not make effective front line soldiers or police.

Military Strength

According to the most comprehensive publicly available analysis of the strength of the world's military forces, Israel has the most powerful conventional land forces (including air force) not only in the Middle East but in Europe (including Russia) and Africa as well. [5] Israel can field a highly trained, combat experienced army of around 600,000 men (and women) and over 10,000 armoured vehicles equipped with with the most advanced military technologies available on 72 hours notice.

This is four times the size of the current American forces in Iraq, the deployment of which has stretched US ground forces to the limit. Its is also twice the strength of the UK's land forces, three times that of France and four times that of Germany. When I visit Yad Vashem I'm somewhat comforted that Hitler would be turning in his grave in the knowledge that the Jews he tried to exterminate now possess military forces four times larger than his beloved fatherland!

The Israeli Air Force (IAF) is also one of the largest in the world with pilots and planes who regularly defeat the best US pilots and planes in training exercises and whose combat record is unparalleled. From the complete destruction of the air forces of Syria & Egypt in a few hours in June 1967 through the destruction of the Syrian airforce without the loss of a single plane in the 1980s ** [6]** , the destruction of the Iraqi nuclear reactor in 1981 and the recent destruction of the Syrian nuclear reactor accompanied by electronically crashing of the entire Syrian air defence network for 12 hours in 2008 [7], the IAF is by far the most accomplished air force in the world.

Israel leads the world in developing the defence technologies that are changing the face of warfare: robotic planes (UAVs), robotic ground vehicles, robotic stealth boats, robotic defence towers, anti-missile defence systems for vehicles (Trophy & Iron Fist), ships (Barak) cities & bases (Iron Dome) and countries (Arrow II & III).

The Israeli Merkava IV tank was already considered the best in the world [8] even before the installation of the Trophy Active Defence system made it impervious to ranged attack (including from other tanks' main guns) [9] . The concept of a tank that can shoot down anything fired against it from infantry, tank or aircraft and then return a devastating counter- attack within a fraction of a second is a complete game-changer in armoured warfare.

Israel is the only country with active missile defence systems protecting its cities and strategic sites from short and long range missile attacks and the only western country with a real civil defence system to protect its citizens from harm. Israel's speedy and effective response to the Haitian earthquake (in contrast to that of other nations) has again demonstrated that it is the only country that knows what to do when disaster strikes.

Location

As any property investor knows the most important thing in real estate is “location, location, location” and military force is only effective if it can be brought to bear in strategic locations. Despite the tiny size of the country, Israel has access to both the Mediterranean and Red Seas which are so crucial for Europe's trade and has over 60% of the world's oil reserves within range of its prodigious air-force. [10]

Of course Israel has never sought to exercise the military power it possesses to shut down Europe's economy overnight and probably never will. But perhaps Europe would be a bit more circumspect about funding Israel's enemies and interfering in Israel's internal affairs if it contemplated what an angry Israel could do.

Equally, other major powers, especially China, should consider, in deciding whether to get serious about sanctioning Iran, what will happen to their economies should Israel decide to destroy Iranian oil production along with the nuclear facilities with which Iran has promised to destroy Israel. Such action by Israel would be completely justified by the need to deprive Iran of the financial means of rebuilding its nuclear facilities.

Energy Independence

Significantly, Israel itself is far less oil dependant than all other advanced economies and will, as a result of the recent massive natural gas finds off Haifa and the conversion of its transportation infrastructure to electric vehicles, shortly be energy independent.

For historical reasons Israel has always sought to reduce its dependance on the oil produced by its Arab enemies and has implemented alternative energy as a national security imperative. With the world-first completion of Project Better Place's electric vehicle infrastructure in Israel in 2011 [11] and the suitability of Israel to electric vehicles, the country will be the first in the world to convert from oil based to electric vehicles, thus severing Israel's last reliance on imported oil in favour of electric produced from its own gas fields.

While Israel is heavily dependent upon exports, like most other advanced economies, its exports are predominantly the unique high tech products of Jewish genius & innovation that cannot be obtained elsewhere. [12] These high-tech products generally do not rely on oil (or any other imported resource) and indeed in some senses compete with it and would benefit from an oil crisis. After all, if you can't afford to fill your car with petrol to get to work or the shops you'll be forced onto the internet to work and shop, will start considering a Project Better Place electric car and look at alternative energy options for your household energy needs. If physical goods & services become more expensive because of increased transportation costs, digital goods & services will become more attractive to consumers. All this would increase the demand for Israel's high tech exports.

Consequences

So if Israel is indeed the imaginary powerful and essential nation I described at the beginning of this essay, why is the world's behaviour towards Israel the exact opposite of the respect, fear and admiration which such a nation should engender? And more importantly what can be done about it?

Anti-semitism clearly plays a role in the world's shabby treatment of Israel, and vast libraries have been written on the subject. However it is not the only factor, nor the one which is most amenable to change. While anti-semitism should clearly be confronted wherever it is found, it seems clear now that this 3000 year old hatred cannot be completely eliminated and indeed arises partly from jealously of the very excellence and genius which has made Israel great. [13]

I believe that the most significant factor in the world's failure to accord Israel the respect it deserves is that Israel and Jews worldwide have failed to recognise, comprehend and internalise the true centrality and power of Israel in the world today. While this is quite understandable given the rapidity of Israel's transformation over the last 25 years and the previous 1900 years of exile and persecuted minority status, it needs to change. After all, if you don't believe in something yourself, how can you expect anybody else to.

Israel does not necessarily need to exercise its power in any direct way to change the world's treatment of it. It just needs to internalise the facts of its centrality and power and begin to communicate them to the world, both directly and by simply acting as a powerful sovereign state which will not brook any interference in its internal affairs.

The US alliance

On this note it is high time that Israel said a polite “thanks but no thanks” to Uncle Sam's annual $1.9 billion subsidy to US defence companies and $640 million direct military aid to Israel [14] . US defence aid (75% of which must be spent in the US) disadvantages Israeli defence companies in bidding for IDF contracts often causing the IDF to purchase inferior US systems rather than superior Israeli ones [15] and allows the US to block Israeli defence contracts worth far more than the value of the aid. [16]

While $2.55 billion defence aid may sound like a lot of money, in 2009 Israel's GDP was $207 billion [17] growing at a 4.4% annualised rate in the last quarter of 2009. This means that Israel would make up for the loss of US defence aid in only 3 months of GDP growth. Moreover the removal of the US's effective veto over Israel's foreign defence sales would very quickly recover amount of aid forgone in increased defence exports.

But most fundamentally Israel must forego US defence aid because it is a dangerous crutch which prevents Israel's emergence as a true sovereign nation. Like welfare dependence for the individual, foreign aid dependance for nations is highly erosive of character. It is a vestige of Israel's socialist, mendicant past not its high tech future.

The nature of the US -Israel alliance needs to change from the current client-state relationship to the respectful partnership which characterises the US's alliance with the UK and Australia, taking into account the fact that Israel is far more militarily powerful and economically important to the US than either of those nations.

Relationship with Europe

Israel also needs to re-cast its relationship with European countries to properly reflect the realities of Israel's vibrance, fertility, centrality and power compared to Europe's dim economic and demographic future, military weakness and energy vulnerability.

Israel should politely make it clear to the European Union that its considers all matters to do with the Palestinians and the “peace process” to be off-limits to European involvement and interference as these matters are the internal affairs of the sovereign Israeli state. Israel should indicate that it considers matters to do with the Palestinians the same as China considers matters to do with Tibet or Russia considers matters to do with Chechnya and that it will consider EU funding of Palestinian organisations or Israeli political NGOs as a hostile act.

Israel does not need to threaten Europe militarily to get Europe to respect its sovereignty. It merely needs to make it clear that Europe's future prosperity depends on Israel's high tech innovation while the manner in which Israel deals with its oil producing enemies [18] will determine whether or not Europe's economy collapses from another oil shock.

For those worried about Europe's reaction to Israel asserting its sovereignty one only need to remember back to Europe's weakness when confronted with Russian threats to its gas supply in 2008 & 2009 to understand that Europe will quickly realise that its not worth the risk to Europe's already weak economy to defy Israel on the issue.

Equally, concerns about possible sanctions or boycotts are completely unfounded. Most of Israel's exports are unique high tech products for which there is no cost effective alternative and which confer competitive advantage on those using them. Thus those groups imposing sanctions just hurt themselves and benefit their competitors who don't sanction. Europe's lack of unity in relation to attempts to impose meaningful sanctions on Iran shows how powerful economic self interest is even when the economic opportunities are not unique.

Historically sanctions have only ever been effective on commodity exporting nations (like South Africa, Iraq or Iran) whose products can easily be obtained elsewhere at little additional cost. Moreover it is impossible to prevent the cross border transfer of the digital information which comprises much of Israel's exports without completely shutting down the internet.

In addition Israel has been subject to a boycott from the Arab world since its founding. It has clearly been a complete failure that has only served to hamper Arab economic development and spur Israel to greater innovation and focus on its inherent strengths in boycott proof innovation industries.

Conclusion

The transformation of Israel over the last 25 years into a military, economic and demographic powerhouse crucial to the world's future prosperity is a miracle on par with the original founding of the State.

Just imagine for a moment a world where Israel is respected and admired by the world for its achievements, power and central place in the future of the human race. Israel could then truly be a light unto the nations and fulfil its historic and biblical destiny.

This world is within our grasp if we can only recognise and internalise Israel's true significance in the world. If we will it, it is no dream.

Andrew Hamilton Jerusalem, Israel March 2010

Footnotes

1 IMF World Economic Outlook Database, October 2009: Growth 1990-2010 Israel ranked 2nd out of western OECD countries with (simple) average growth of 4.42%pa. Ireland 1st with 4.98%pa, Australia 3.04%, USA 2.48%, UK 1.97%, Germany 1.49%.

2 Australia being the only other OECD country with positive growth in 2009.

3 High immigration rates can only be maintained by taking skilled immigrants while a country exhibits strong growth
(eg Australia) or by compromising the demographic character of a country by taking refugees (often Muslims with
high fertility but cultural incompatibilities with the host nation) (eg France, Netherlands, Sweden, Norway etc).

4 en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate

5 www.strategypage.com/fyeo/howtomakewar/databases/armies/default.asp

6 www.statemaster.com/encyclopedia/Israeli-Air-Force

7 www.haaretz.com/hasen/spages/927089.html

8 www.strategypage.com/fyeo/howtomakewar/databases/mbt/mbt.asp

9 http://en.wikipedia.org/wiki/Trophy_active_protection_system

10 en.wikipedia.org/wiki/File:World_Oil_Reserves_by_Region.PNG Middle East and part of Africa are within IAF
range.

11 www.betterplace.com/global-progress/israel/

12 This is one of a number of reasons that no sanctions or boycotts of Israel can ever be effective. Most of Israel's
exports are unique high tech products for which there is no cost effective alternative and which confer competitive advantage on those using them. Thus those groups imposing sanctions just hurt themselves and benefit their competitors who don't sanction. Historically sanctions have only ever been effective on commodity exporting nations (like South Africa, Iraq or Iran) whose products can easily be obtained elsewhere at little additional cost. Moreover it is impossible to prevent the cross border transfer of the digital information which comprises much of Israel's exports without completely shutting down the internet.

13 Some Jews will be uncomfortable with the publication of a paper highlighting Israel's economic and military power feeling that it will increase anti-semitism. To those insecure fellow Jews I would say that people who dislike Jews more because of what I write are already anti-semites and fail George Gilder's Israel Test. It is better that they fear us because they will never like us. For many others who value prosperity, innovation, entrepreneurship and freedom the knowledge that Israel is crucial to their future will increase their support of Israel.

14 In 2009 US aid to Israel (all military) was $2.55 billion with 75% of it required to be spent on US defence products. www.globes.co.il/serveen/globes/docview.asp?did=1000306191

15 A classic example of this was the use of US cluster bombs in the 2006 Lebanon war which left unexploded bomblets all over southern Lebanon instead of the advanced Israeli cluster bombs in which the bomblets self destruct after a period of time thus protecting civilians who later enter the battle zone. www.informationclearinghouse.info/article15695.htm

16 Examples include the multi billion dollar Phalcon sale to China and development of a new jet fighter with the French.

17 766 billion NIS at 3.7 NIS to the US$. Source: www1.cbs.gov.il/hodaot2010n/08_10_049t2.pdf

18 Countries which are already Israel's enemies: Lebanon, Syria, Saudi Arabia, Iraq, Yemen (as defined by Israeli law)
and Iran (current threats to annihilate Israel) produce and export 21%of the world's oil. en.wikipedia.org/wiki/List_of_countries_by_oil_production; en.wikipedia.org/wiki/List_of_countries_by_oil_exports
These oil production and export facilities are highly vulnerable to Israel's air force.