The Israeli Way of Doing Business

I’d like to welcome dark penslar who is a professor of israel studies at oxford university and also a professor of jewish history at the university of toronto welcome to knowledge at wharton thank you thank you for joining us today i want to ask you what are the features of a jewish approach to economics and and how that differs from other approaches but before

I get to that i wanted to start with this idea of what do you think of pairing ethnicity with economics and looking at the two together because that can be a controversial idea just starting off they can be very controversial no matter how you approach it it is sensitive the fact is that until the 1930s 1940s it was very common for scholars including jewish

Scholars who were really embedded in their communities to write about the the relationship between the jewish religion or jewish nationality and jewish economic behavior nothing wrong really was attributed to it anti-semites were making outrageous comments about jewish economic behavior or domination but but jews considered it a completely acceptable thing to do

And then came the horrors of the 1930s 40s nazism the holocaust and in the wake of that a lot of the language that had been used to talk about jews is a kind of an ethnic unit and an economic unit was discredited it was considered no longer appropriate to talk about jews that way even by jews even by jews and so jewish scholarship scholarship on the history of

The jews tended to focus on anything but economics religion was okay politics was okay culture was okay but economics was taboo a very few people wrote on economics every every now and then and just in the last i’d say decade decade and a half we now see young scholars who are now you know two generations removed away from from the holocaust who are beginning to

Take this subject up up again and after all you can’t understand any kind of group behavior without a deck without economics so enough time has passed it would seem i think enough time has passed although there are people who still are nervous about it because of the way that anti-semites have made use of economic arguments to demean the jews well let’s get into

What some of these characteristics or features of the jewish approach are and how they may differ from other cultures other countries other nations well one thing i would say there’s there’s not some monolithic thing called the jewish economy that sort of marches across space and time it’s just that there seem to be certain forms of economic behavior or economic

Culture throughout much of the jewish world that seem to repeat themselves in in many different circumstances and it’s hard to know how far back to go but certainly by the time we get into the later middle ages up through early modern times 20th century the most important thing really is just one sentence which is that jews throughout most of history have not been

Peasants or aristocrats throughout most of human history most people until recently were peasants they worked the land they often couldn’t leave the land and that doesn’t encourage economic innovation it doesn’t encourage literacy it doesn’t encourage numeracy it doesn’t encourage entrepreneurship and aristocrats are lords of the land and they tend to be a warrior

Elite and that also does not encourage innovation so who innovates in a society the middle classes the townspeople the bourgeois or the burghers well jews have been for millennia primarily a people of townsman it might be a small town it might be a large one and they’ve worked in a mixture of crafts but also in in commerce when people are doing that generation

After generation they developed certain comparative advantages whether it’s literacy or numeracy and let’s not forget the fact that jews are connected with each other across space the jew in one town in poland has jewish distant family from another part of poland or from somewhere in germany and so on so but the israeli economy as you alluded to in your last answer

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Has changed a lot over the last thirty years let’s say without going back centuries just right at the last thirty years and it’s gone from largely a social socialistic approach to the economy to a much more capitalistic approach can you talk about that change and how it came about why it came about sure and i can do it by actually bridging a little bit from you

Know the 16 1700s i was talking about a second ago into into directly into your question which is the jewish world in central eastern europe primarily was just overwhelmed by the possibility of revolution in the 19th century capitalist revolution transformation of economic relations but also socialism communism various movements on the left and national movements

Zionism is after all a classic form of jewish nationalism were caught up with this idea of a revolutionary change in the jewish people so zionism when it realized itself in the state of israel in 1948 was very strongly dominated by i wouldn’t say a socialist ideology as such but one that had had socialist elements where the state played a very major role in the

Development of the country in the promotion of the nation there was a lot of state-owned industry there were severe limits on wages so for example wage differentials between workers and say physicians or professors in the early state of israel were quite minimal so there was this kind of egalitarian ethos not socialism per se but kind of social democracy and that

Was one kind of jewish i would say economy in that it was influenced by the very strong role jews had played in the revolutionary movements in the early 20th century but that was israel of one era 1950s 60s it already begins to loosen up in the 70s and the 80s israel becomes an industrial powerhouse manufacturing textiles medical technology it’s no longer making

Money selling oranges an app or enjoys and grapefruit alone there’s a lot more to the israeli economy and then comes the great privatization wave that begins in the 1980s and has really continued to our own day state-owned industries are sold off and there’s a kind of neoliberal economy where now israel is one of the world’s centers really for investment from abroad

And of economic innovation it’s seen as a world center for high-tech innovation in particular but all kinds of innovation and i’m wondering to what extent the military in israel has played a role in that development of high-tech how closely related are those two they’re very closely related now they are in pretty much any country so take aerospace and develops in

California and you know the united states from world war two on so clearly high-tech innovation in the united states the the internet came after all out of the us military so that kind of connection is not unique to israel the difference is that the united states has this massive economy and as big as the military is in the us there’s an enormous consumer driven

Business driven economy israel’s a smaller country with a smaller economy and the military is far more pervasive so there’s a lot more direct applications of military technology to the private sector so it can be that some kind of programming that was developed let’s say to help provide directional assistance to fighter aircraft might then become used in gps for

For civilian automobiles this sort of thing that much more direct transfer of technology so over over history there’s been other groups that have had prominent merchant classes that also went to other parts of the world and established beachheads i’m thinking of particularly the the chinese throughout southeast asia where they are often some of the chief merchant

Classes in some of the big cities in southeast asia even today although they are a tiny percentage of the population and india is another example where there’s there’s been a lot of merchant activity many much of which has or some of which has gone overseas so there’s a spur offer from india of businesspeople how do those groups how are they similar to what’s

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Happened in israel and to jews over the years and how do they differ well there’s there’s two different ways of answering the question one is that jews until really 1948 were almost like a periphery or a diaspora without a center that is spiritually they had this notion of the land of israel as their center but that wasn’t really their physical demographic home so

They were like a doughnut as it were but there’s no center in the doughnut and they dealt with each other throughout the jewish world so you’ve got that jewish merchants in new york who scott the colleague or the relative in cleveland and someone in los angeles so there’s a lot of horizontal integration and something similar happened of course with it let’s say

Indian merchants throughout much of africa throughout british africa the difference is that there was a homeland there was a homeland and although some of these indian merchants never saw that homeland some of them did you know you have mohandas gandhi for example who’s in his case an attorney from gujarat in india but then he winds up making his career partially

In south africa and then comes back to india there is a center there’s a place to go back to for israel for the state of israel that only happens in 1948 and you have a state but until really the 1970s you don’t have lots and lots of israelis living abroad as you do now now there’s an israelis eye a spur of who knows half a million as many as a million living in

The united states they have very close ties including economic ties with the state of israel so i’d say now the israeli diaspora relates to israel economically the way that the indian diaspora the chinese diaspora of the past may have dealt with their homelands so it’s become more similar since he’s becoming more similar because israel’s a normal state in that

Sense and the israeli diaspora is a normal diaspora israel as i mentioned is well known for being innovative for being innovative in high-tech in particular or are there attributes of the israeli economy related to that that can be adopted or adapted by other countries that see that success and and you know just as they would look at silicon valley and say how can

We develop something like that in our country well theoretically yes but it might be difficult because there are national cultures there are ways of behaving and if you look at israel on the way for example the high-tech sector works in israel there’s tremendous informality there are authority structures but they’re very loose and you can challenge authority you

Can challenge your boss and things are much less well-organized there’s a lot more improvisation so the question is whether these corporate cultures and other parts of the world are frankly willing to loosen up the way that israel has israelis also they bring into the project a lot of intellectual independence and one has to be willing to listen to a lot of that

And it so it has to be much more of a group sort of decision making process than an individualistic one what i don’t know if it can be translated as easily is the census raley’s have of a very strong solidarity which keeps them united despite the often black of the the lack of strong authority structures israel has a sense of common threat whether it’s real or

Perceived is not the issue there’s that sense and there’s a sense of certain jewish solidarity whether one can replicate that in other parts of the world i’m not sure but the actual chain of command the way decisions are taken on a daily basis the way brainstorming takes place yes of course one could try to replicate that one last question any idea what the next

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Iteration of the israeli economy might look like are you saying anything today that’s moving on that’s that a departure from what we tend to think about or think we know about the israeli economy today well one thing’s for sure israel shows every sign of continuing to be a world leader in many aspects of of high-tech but it’s not just that and the fact is israel does

Have competition and it’s not just the united states and canada there’s the european union and i mean israel is not alone in this and there is a concern in israel that inadequate government funding if the startup funding for example the investment funding that comes from venture capital capitalists all over the world if this were to dry up then the israeli startup

Economy would dry up so israel in some ways is very vulnerable what i think might begin to happen is that israel will become not only a leader in the development of new technologies but the adaption of existing ones the existed the for example desalination which 30 years ago was considered outrageously expensive and simply impracticable but israel is now adopting

A desalination that i think is providing up to 70% of the country’s drinking water the country will actually have a water surplus in a few years this would have been absolutely unheard of they’re using technology which is in part homegrown a lot of it’s come from from elsewhere so israel’s innovation isn’t simply that they’re developing things at home it’s also

What they make use of from what comes from the outside so a second last question which is what haven’t i asked you that would be interesting for viewers to understand about the israeli economy i think would be really interesting to understand i guess two things one is similarities and differences between the israeli economy and its jewishness however we can define

That and american jews because american jews by and large or it’s a very successful ethnic religious minority but it does not display as an aggregate it seems the same kind of thirst for innovation that one finds in the state of israel american jews are by and large a comfortable and successful minority and if anything the innovative aspects of that community are

Being bled away by success you know 50 60 years ago american jews the first generations to go to university they worked very hard they had to be innovative to to make it in the world whereas now they’re more comfortable and they can trot and well-established paths and business and the professions or is in israel there still is this still is this kind of thirst to

To succeed and the other thing i would sort of want to mention gets back to where we started is is it even appropriate to ask these questions about the jewishness of an israeli economy so i would just say that in other parts of the world in china and in india there’s much less embarrassment about talking about the relationship between culture and economics scholars

Of indian studies simply do this all the time what they’re careful about and i would finish with this there’s a difference between saying that there can be a cultural influence behind economic behavior and some sort of determinants that people because they belong to a certain ethnic community or identify with them that they are automatically blessed or cursed or you

Know predetermined to succeed or to fail economically there’s enormous parameters enormous spectrum of possibilities this is not an issue of race this is not an issue of genetics this is an issue of culture culture is fluid and organic and all we’re talking about is a field of possibilities which in the case of israel they managed to realize thanks very much for joining us welcome you

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The Israeli Way of Doing Business By Knowledge at Wharton