A first pass at the implications of Israel’s gas

A clever article in Foreign Policy describes Israel’s near-future status as an energy power.  The article begins with a variation of the old joke, “If only Moses had turned right instead of left, we would have gotten the oil.”

But the reality is that oil and other forms of easy natural wealth are more often a blessing than a curse.  Time and again national prosperity and industry is overturned by the easy riches of mineral wealth.  The general explanation is that the money makes the people lazy, and perhaps there is some truth to this.  But there is another explanation, known as Dutch disease (for when the Netherlands discovered huge natural gas reserves in the North Sea.)  Basically, the expanding exports push up the value of the national currency which makes their industries less competitive.  Consider, with oil money driving up the international buying power of Venezuela’s currency a cattle farmer in that country is now competing against suddenly cheaper meat from abroad.

So really, Moses did the Jewish people a favor missing the easy oil riches of the Arabian peninsula.  However, advanced economies can manage the impact of energy wealth more capably than under-developed ones.  The Netherlands and Norway took steps to prevent their newfound energy wealth from undermining their other industries and Israel can do the same.

Meanwhile, the huge energy finds could be an important blessing for Israel.

First and foremost, energy security is a positive and with cheap energy Israel could possibly undertake massive desalinization projects.  This could be a boon in its own right to the Israeli economy (innumerable industrial processes require substantial amounts of water).

Energy exports can be used to foster strategic relationships with other countries and, as the recent UN vote indicated, Israel is hardly awash in friends on the international scene.

And of course, the money generated from energy sales would be helpful to Israel.  High defense spending and inefficient government industries continue to hamstring Israel’s economy  Greater resources could be helpful for some of these problems.

Finally, the combination of energy, water, and money are useful cards to play in negotiating with the other players in the region.  The history of the region obviously provides little support to the thesis that the Arab powers are ready for economic cooperation with Israel – no matter how lucrative.  And leaders everywhere have to tread carefully in deals in which material goods are gained in exchange for concessions of items of symbolic value.  No Palestinian leader will want to be portrayed as handing over Jerusalem for money or water.  Still, these items will be useful cards in Israeli hands in its dealings with its difficult neighbors.

There are of course dangers to this “easy” money.  It could be used to avoid hard political decisions, such as reducing the Haredi welfare state in which tens of thousands of Israeli men study in yeshivas, living off of welfare rather than working.  This system has strong political support from the Haredi parties which are often able to play the dominant political factions against one another.  (Unfortunately, money is no substitute for political will in curing Israel’s dysfunctional political system.)

Also, cheap energy might be squandered.  I read somewhere that when asked why, despite being surrounded by it, Icelanders don’t eat cod, and Icelander responded, “We don’t eat money.”  Perhaps Israel could use its wealth to develop alternative energy, thus maximizing both revenue from its energy resources and continuing to be a font of innovation in a critical sector.

The Biggest Blessing
But perhaps the greatest blessing the energy industry could bring to Israel would be an important development in Israel’s human resources.  An energy industry requires large-scale organization and coordination.  So far, the primary source for large-scale organizational skills in Israel is the IDF.  One can be a deep admirer of the IDF, while still recognizing that an alternate source of high-level management skills and strategy would serve the country well.

Israel’s economic miracle has been rooted in its human capital.  Among the many blessings Israel’s new energy wealth can bring will be new avenues to develop this resource.

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