shekel.”
Because of Netanyahu’s financial-sector reforms, it also became legal for investment managers to charge performance fees. Keinan didn’t waste any time; he founded KCPS, Israel’s first full-spectrum financial-asset-management firm, in Tel Aviv and New York. “The moment I read the draft law of Bibi’s reforms, my wheels started turning,” Keinan said. “It was clear that this truly could liberate our non- high-tech economy.”
Keinan argues that a ton of local talent was untapped. “If you think about what young Israelis learn in some of the army intelligence units, for example . . . often highly sophisticated quantitative analytical skills—algorithms, modeling out macroeconomic trends. If they wanted to go into high tech, there were plenty of start-ups that would gobble them up after their army service. But if they wanted to go into finance, they’d have to leave the country. That’s now changed. Just think about this,” he continued. “There are Israelis working on Fleet Street in London because there was no place for them here. Now, since 2003, there is a place for them in Israel.”
PART IV
Country with a Motive
CHAPTER 11
Betrayal and Opportunity
—YOSSI VARDI
THROUGHOUT THIS BOOK, we’ve pointed to the ways the IDF’s improvisational and antihierarchical culture follows Israelis into their start-ups and has shaped Israel’s economy. This culture, when combined with the technological wizardry Israelis acquire in elite military units and from the state-run defense industry, forms a potent mixture. But there was nothing normal about the birth of Israel’s defense industry. It was unheard-of for a country so small to have its own indigenous military-industrial complex. Its origins are rooted in a dramatic, overnight betrayal by a close ally.
The best way to understand Israel’s watershed moment is through a shock to Americans that had a similar effect. During the postwar boom years, America’s global status was suddenly punctured when the Soviet Union upstaged the United States by launching the first space satellite—
Innovation economist John Kao says that
A little over a decade later, Neil Armstrong stepped onto the moon. The Apollo program and the Pentagon’s related defense investments spurred a generation of new discoveries that were ultimately commercialized, with a transformative impact on the economy. This concerted research and development campaign gave birth to entirely new business sectors within avionics and telecommunications, as well as the Internet itself, and became a legacy of America’s response to
Israel had its own
De Gaulle, a founder of France’s Fifth Republic, had been in and out of senior military and government positions since World War II and served as president from 1959 to 1969. After Israel’s independence, de Gaulle had forged an alliance with the Jewish state and nurtured what Israeli leaders believed to be a deep personal friendship. The alliance included a French supply of critical military equipment and fighter aircraft, and even a secret agreement to cooperate in the development of nuclear weapons.2
Like many small states, Israel preferred to buy large weapon systems from other countries, rather than devote the tremendous resources needed to produce them. But in May 1950, the United States, Britain, and France jointly issued the Tripartite Declaration to limit arms sales to the Middle East.
With no ready supply from abroad, Israel had already begun its arms industry with underground bullet and gun factories. One factory was literally hidden underground, beneath a kibbutz laundry; the machines were kept running to mask the banging noise from below. This factory, built with war-surplus tools smuggled from the United States, was producing hundreds of machine guns daily by 1948. Makeshift factories were supplemented by scattershot gunrunning across the globe. David Ben-Gurion had
