Israel: The Way Forward

Suggestions for the Post-Free Trade Era

Despite crisis after crisis, real and manufactured - the government vs the deep state vs the soldiers vs politicians vs the opposition vs the actual enemies - Israel is still in growth mode economically and technologically. Yet it must be pushed in the direction that helps its national security as well as its economy. It is safe to say that Israel would not be where it is today technologically without the IDF being a farm system for programmers, engineers and leaders. With all the failures of October 7, much was gotten right in Israeli security technology and much of Israel’s economic boom has come from the training that Israelis get in the IDF.

That training can be in the intangibles such as toughness and decision making under (literal) fire, bravery and the ability to see the near-impossible through to the end. But much of the engineering talent that has produced so many startups and created established leaders in the global economy has come from the training these men and women received in the IDF and then in the large public and semi-government owned companies such as Elbit Systems and Raphael. These are often staffed with former officers and soldiers with experience in managing large projects and developing tactics and adapting the technology necessary to improve performance.

Technologically the world stands before a cloudy future where AI has both promised technological wonders and created fears of a post-human future. Economically, we are now living in the post-free trade world where tariffs and national interest take the place of global trade, GDP growth and cheap goods. Ironically, AI is the tool that could have made the free trade world more efficient but instead will now have to help figure out a way for the individual countries or groups of countries to find their way to success in a world where the rules and the goals have changed.

There are many reasons for this, but we must remember one thing – post-WWII free trade era never originally included enemy countries. The Soviet Union and their satellites and allies were not part of it and while the US dominated, the challenges from Japan and Western Europe and later the Asian tigers were arguments within the family. There were arguments and tariffs then – but they didn’t affect national security the way they do now with China being an integral part of the global trade network.

The winners will be those that figure out a way to increase their own national wealth, well-being and security. Where Israeli cyber security firms for example were looking to make sales no matter the cost to Israel’s security (to be fair, all defense and defense related transactions need approval from the Defense Ministry – although that has been corrupted by those who should know better, by exporting the people who make the technology to foreign countries so as to get away from Israel’s security safeguards) there will have to be closer regulation of these deals with increases in legal punishment and public shame as the price for ignoring them. Shame will be a big part of new way of doing things but that will require a robust press and justice system not politically oriented – but that is a discussion for another day.

The end of the free trade era means that countries will have to look to do more expensively what could have been done more cheaply – but more importantly it will mean doing the important things internally while importing the unimportant things. In other words, the challenge of the countries won’t be to produce the next billion dollar Facebook but rather to import the abundancy of useless words – let it be developed elsewhere – in order to invest in that which is scarce and therefore important. For a country of 350 million people time is what is scarce but to a country of 10 million people it is time and people. For all countries what is important is security and well-being and for that what is hard must be developed and produced internally.

As the IDF has been the training ground for Israel’s economy (much as the US military was for the internet and the space program for so much else) it needs to partner with local VC’s and to go to grant mode and fund early stage to develop new products for all its forces and even provide training grounds to help develop and test these products. Israel currently has an office of the Chief Scientist that helps with incubators and initial investments, but they are very bureaucratic, demanding and self-important and what Israel needs it hundreds of failures in order to produce the few scarce successes. The Israeli Defense Ministry and/or the IDF teamed up with venture capital knowhow and money and the creative capabilities and experience of the army’s reservists can create expansive value for the country’s economy and defense.

This is not another rewarmed industrial policy but instead using a Defense Ministry-VC partnership to unleash the creativity and experience that this war has uncovered – as long as it does not use the IDF’s existing overly-bureaucratic, protective “new product” team. In addition to improving economic incentives and rewards to reservists and their families, they should be given access to capital and infrastructure in order to develop ideas that they inevitably get on the battlefield in what they need to defeat the enemy and defend themselves and their fellow citizens. I am thinking of a wonderful article in the Summer 2024 issue of City Journal, The Next Arsenal of Democracy which describes what is going on now in El Segundo California, near LAX in which young patriotic techies are building drones and other military hardware. They are not going to build the next F-35 but they might be building that which makes an infantry division into a stronger fighting force, including AI powered drones.

For example. the idea of an “air force for the infantry” has been spoken about more and more since Israel’s ground incursion into Gaza. This idea builds upon the combined arms fire tactics originated in the US and that both Israel and Ukraine have used to such success. This doesn’t need the engineering expenses of a Lockheed or Raytheon – or even an Elbit or Raphael, but with minimal capital and proper infrastructure can allow competing teams to design and succeed – or design and fail as the case might be.

For $20 million you can fund 100 projects for one year. They will have $200,000 and one year to reach a stage where they can take their projects to the next stage with private sector VC funding or fold up shop. Yes, this will require a few centers in the country where the work can be done, experiments can be performed and knowledge can be shared. The IDF has plenty of space for that and VC’s can chip in for whatever hardware is needed. The doesn’t have to be limited to the ground forces but can also be open to those from the other commands and even extended to those who were in the Mossad, Shaback and Police. The idea is to have a constant flow of improvised teams. If 5% turn out to be productive companies, the profit to the country’s security and economy will be great.

Another area where this can be used would be in tunnel fighting warfare. Interestingly, the fact that this type of fighting was so new meant that each division commander fought in the tunnels differently to various levels of success. The IDF is built for decentralization and there is no reason that ethos can’t be translated into building new technology to support existing or new tactics.

What will tie all of this together is the use of AI in these new weapons systems. When the first AI scare occurred with Open AI there were ethical concerns with the use of AI for military matters. However, what makes the military more efficient and what makes soldiers safer also make for less collateral damage. We see that from the fighting in Gaza, where, as opposed to Biden-Blinken claim of Israeli carpet bombing, Israel destroyed only what it thought it needed to destroy. There was no, or very little “indiscriminate” bombing there. Sadly for the Gazans, Hamas turned the entire infrastructure of Gaza into one big terrorist base.

With so many officers and soldiers with experience in fighting in urban territory the value they can provide to weapons system development is enormous. There are so many engineers, economists, doctors, scientists and others that have seen and participated in this war first hand that it would be a waste of talent and experience not to take full advantage of it. A new IDF/VC program funding these projects by reservists and ex soldiers and officers can provide the country with economic gains in this new AI oriented post-free trade era.

There is another area where Israel should be using AI to move towards independence. That is in certain areas of defense procurement and that is the manufacturing of the “simple” weaponry – by this I mean standard artillery and mortar shells, rifles and ammunition and other weaponry. AI and robotics can help create factories that can produce this weaponry and ammunition that can make a country of 10 million produce like one of 100 million (3D printing?). This project ought to be taken up by the manufacturing sector itself with government help and encouragement. New AI powered factories for the production of commodity type armaments such as 155mm artillery shells and other munitions can lead to a revolution also in the manufacture of consumer products.

Healthcare is another area which Israeli battlefield experience combined with AI, Biotechnology, and advances in materials science can create new medical techniques and devices that can save lives not only in war but in civilian life, too. Devices carried by medics, paramedics and doctors on the battlefield that safe lives can be used by emergency care providers in ambulances, motorcycles and hospitals. Some of these projects can be included in the IDF/VC program and some under other structures.

There are many other emerging and developing technologies than AI and Robotics. There are of course AI enhanced industries such as biotechnologies, lasers and whatnot. The point is that the IDF and government need to leverage what it knows best to move Israel to leadership positions in these fields.

While the war is going on and the geo-political and geo-economic situation changes faster than we can absorb this is the opportunity for Israel to use its experience in war and technological development to take the lead in many fields. A little forward thinking, proper allocation of capital, competition and energy can lead the way. The Economist may consider Israel’s strivings and successes as “hubris” and I for one, have railed against Israeli arrogance and hubris, but in the Economist’s case and those who think like them, that is just a word used by the cowardly and lame. The post-free trade era means that countries need to concentrate on what is necessary – industrial policy in itself will never get a country there but policies that encourage bursts of creativity can.

Israel has been fighting a hard and expensive war – from a human and economic perspective – for a year and a half and it has never had to go to the IMF or World Bank for money. In fact it has been able to sell its bonds on the open market at competitive rates and its currency is stronger now than it was on October 5, 2023. The ten-year bond yield for Israeli government bonds sits at around 4.50% while the “peaceful” UK’s is at 4.625% and the US 10 year is 4.186%.

Socially, Israel is still an optimistic country. As opposed to Ukraine, Israel permits men under 60 to travel abroad because it knows they will return to fight when necessary All those who have written its social, economic and military obituaries have been sorely disappointed and in spite of all the negativity and depression, Israel has a route forward to, as the Israeli press likes to say, “the day after”.

There is a mini-baby boom going on israel, the one western country that already has a positive birth rate. With all the pain, anger and depression that the leadup to the war and the war itself has brought, this mini-baby boom points to optimism in the country and not despair. Israel could have sunk into despair with the humiliating defeat on October 7 but the country, if not its leaders in both the government and opposition, has shown that it wants to move forward. These modest proposals can help push it in that direction.