by Shimon Peres
I returned to Jerusalem and convened our team of economists at my home in the first week of June 1985. I wanted to brief them on my conversation with Fischer, and to discuss the worsening situation. The ensuing discussion lasted well into the early morning, finally coalescing around a basic set of principles. When the meeting finally concluded, I instructed the attendees to form a small working group that could turn our conversation into an actionable plan.
“I intend to bring a plan to the cabinet at the end of the month,” I announced. “There is no time to waste.”
Over the course of the following three weeks, our working group would meet for marathon sessions, finalizing the terms of the plan and refining them into the precise technical language that would become law. In the end, we had polished and perfected a dramatic stabilization program. First we would devalue the shekel, slash $750 million in government subsidies for basic commodities, and order a temporary freeze on wage increases. This, we expected, would result in a steep rise in prices, which we would counter with an eventual across-the-board price freeze. Second, we would implement a substantial round of spending cuts across every government ministry. Third, we would introduce a new, more restrictive monetary policy to prevent such inflation from happening again. It was dramatic in its scope and its reach—and though there was a great deal of anxiety about whether it would work, we believed we’d struck the right balance. We were hopeful about its prospects for success.
The working group formally submitted our proposal to me on Friday morning, June 28. I thanked them for the outstanding—indeed, backbreaking—effort, and for their tireless service to country.
“I intend to present the plan to the cabinet on Sunday,” I told them, “and I promise you, I will not accept anything short of full approval.”
The extraordinary cabinet session began under the highest of tensions. Before approving the plan, we would have to identify hundreds of millions of dollars in spending cuts. I vowed to wield the knife myself, personally reviewing every item in the budget greater than $100,000, making even the most minor of expenditures a subject of discussion. In this I would both ensure that we were going far enough and shield others in the cabinet from some of the criticism that might result.
As for the stabilization plan itself, it appeared we would have a majority. Modai, having been cooperative and helpful in the effort to craft the plan, was supportive of it, as were Foreign Minister Shamir and Transportation Minister Haim Corfu. If I could hold them through the budget-cutting process, it seemed likely to prevail. But the remaining ministers, skeptical of the plan’s chances for success, preferred to continue giving speeches about the crisis rather than take a controversial vote and ownership of its outcome. They vowed instead to filibuster the session in order to prevent a vote from happening—ostensibly killing the plan. In their obstinacy, they didn’t appreciate how willing I was to fight. “Gentlemen, we are going in for a long session. Tomorrow morning, we will have an economic plan,” I commanded, “or I will resign and there will be no government.”
One by one, I worked my way through each ministry’s budget, calling out programs to be cut. When someone objected, I countered by guiding the discontented party through the plan’s fine print. I let everyone speak, no matter how long or ill-intended their remarks. The sessions continued through the night and into the early hours of the morning. Some ministers complained of exhaustion. I dismissed the complaints. “An Israeli minister shouldn’t sleep,” I told them. “During the war we debated for entire nights; it is a minister’s duty to stay awake.” Not everyone listened. There was even a point when we were making cuts to a particular ministry budget, only to realize that its minister had dozed off. He was snoring.
By dawn, the budget cutting was complete, and it was clear I had a majority of ministers in support of the program. What was left was only to wait out the filibuster, to prove to the weakening opposition that I would not end the session without a vote. Finally, twenty-four hours after it had begun, the opposition gave up on the filibuster and I was able to call a vote. Fifteen ministers voted to approve the plan, while seven opposed it and three abstained.
I left the session feeling a sense of accomplishment, but also a wary apprehension. Despite all of my assurance (and reassurance) during the back-and-forth with my opponents, I couldn’t be sure that the program would work, and I was fearful that we lacked other options if it failed. I also wondered if the government’s willingness to share in the sacrifice would be sufficient to bring the unions around to embracing the plan.
I would soon have my answer. On the morning of July 1, 1985, we released a statement describing the program we had just approved. I prepared a speech for delivery later that day, knowing that the Israeli people would want to hear from their prime minister, that they would need to understand what we had done—and why—and how it was going to lead them out of the darkness. I arrived that afternoon at the television station, where I reviewed my remarks once more before taking a seat behind the desk and in front of the camera, ready to broadcast live to the country. But before I could speak, the studio technicians stood up in unison and walked off the set.
One of my advisors hurried over to explain. “What is the meaning of this?” I asked, frustrated at the confusion, and the lack of respect being paid to the office. “The Histadrut has gone on strike,” she told me. “They made a call. Told everyone to leave. They don’t want the people to hear what you have to say.”
I put my frustrations aside, in recognition of the critical work that still needed to be done. Without the cooperation of the Histadrut, the stabilization plan was doomed to fail. I needed to persuade them to relent.
We would spend the next two weeks negotiating. I worked to show them, as honestly and openly as I could, that as painful as the program would be in the short term, it was the only option to save the Israeli economy for our children. They begged me to find ways to compensate workers so that we could curb the economic shock, and I was forced to remind them, again and again, that doing so would only restart inflation’s deadly spiral. In the end, we came to an agreement: the unions agreed to suspend the strike and reluctantly embrace the program, and I promised that as soon as the economy stabilized, I would do all I could to help raise living standards again.
It took less than a month to see the fruits of our labor. In August 1985, inflation fell to a stunning 2.5 percent. By the end of the year, it had stabilized at 1.5 percent, and it continued to decline over time. The unemployment rate had ticked up by a little more than 1 percent, which was far less than the big jump we had feared. Eventually the plan would be hailed around the globe, becoming the subject of papers and lectures at the finest universities—a new and novel approach to a dark and difficult crisis that could be replicated throughout the world.
•••
The speed of the healing gave me the room to breathe and to think about the critical next steps we would take as a state. We had rescued the economy, but in a sense we were saying good-bye to it, too. The socialist framework of our founding was no longer viable. We had to take our first steps toward capitalism—to embrace and then master a private-market approach. And yet despite starting anew, we weren’t starting from nothing—far from it. We had a strong high-tech industry supported by extraordinary universities and research institutions. We had one of the most highly educated populations in the world, among them thousands of engineers with great talent and ambition. We had mandatory service in the IDF, where young men and women learned that questions are as important as orders, and that no title or rank can absolve someone from explaining his or her intentions and goals. And of course, we had our culture of chutzpah, a well-earned reputation as a nation of risk takers.
What we needed now was to cultivate these advantages in the private sector. We needed entrepreneurs ready to turn their ideas into start-ups; venture capitalists to invest in their ideas, while providing support and guidance; and multinational technology companies to use Israel as a critical hub, p
roviding our workers with training and supply chains and partnerships.
First, we would have to free our engineers from their roles in government, creating the pool from which start-ups could hire, and giving the visionaries the chance to build something of their own. That work began in a way few would have expected—with a decision I made to kill a project I had nurtured from infancy, one I’d long considered a bold and noble dream.
After the Six-Day War, France, which had been our principal military supplier, had turned its back on us. Charles de Gaulle, who had championed the Israeli-French relationship in the past, had suddenly found us to be an obstacle in his broader strategy. Having dedicated himself to improving relations with the Arab world, de Gaulle used the war in 1967 as reason to impose a temporary arms embargo in Israel, and in so doing, prove his commitment to his new trading partners. At the same time, Great Britain backed out of an agreement to sell tanks to Israel. We had no immediate way to replace our damaged fighter jets, no spare parts for the ones still in working order, and no sure way to replenish or supply frontline battle equipment. The United States had stepped up to fill the gap, but gave us cause for concern during the subsequent Yom Kippur War, when the replenishments they offered were inexplicably delayed. It had become clear that by relying on foreign governments for security assistance, we could also be held hostage to the changing tides of foreign politics.
When I became defense minister in 1974, resolving this dilemma was one of my highest priorities. I believed it was time for Israel to make an investment in our own military machinery several times greater than anything we had done. In 1980, we announced the centerpiece of that program—a long-range strike fighter known as the Lavi, which means “lion” in Hebrew. The jet was designed to be incredibly versatile, capable of traveling at high speeds over great distances with heavy payloads, and operated using the most advanced software systems of the day. The Lavi program seemed to capture the imagination of the Israeli people almost instantly, seen as a shining example of our boldness, a proof point that a nation as small as ours could still compete with the world’s greatest economic powers.
But it wasn’t to be. The Lavi would become a victim of the economic collapse, and an anachronism for the new economic order. Stabilizing the economy had required, among other things, a massive cut to defense spending. Despite having the technical prowess to manufacture the plane, we no longer had the budget to dedicate to its development. Ending the project would be personally difficult, the jet having taken flight so many times in my imagination. But out of the failure, I could recognize opportunity. The Lavi project represented the economy of the past—a top-down, government-run operation. By canceling it we would send a crucial signal to world markets about the seriousness of our transformation, while creating a flood of newly available experts who would populate private companies and start up new ones. When I introduced the bill to kill the project there was a heated debate, and great shock that it was me, of all people, calling for the end of the program. But I knew I was doing the right thing. When the Lavi project was officially canceled, the deciding vote was mine.
Next, we would need to build a venture capital system. Venture capital firms provided more than just funding; they provided guidance on how to manage a company, how to grow it at scale and at speed, and how to market products to the world. While Israel had a long history of developing new technologies, our entrepreneurs lacked this kind of mentorship.
At the time, Israeli companies could only secure venture funding from two sources. The first was a government grant-matching program run through the Office of the Chief Scientist, which, while well intended, was never able to provide new companies with sufficient funding to grow. The second was a similar program, the Binational Industrial Research and Development Foundation, known as BIRD Foundation, that had been created in 1977 as a joint fund between the United States and Israel. These grants, too, were modest, but they did something critical for us: they made it possible for Israeli companies to work closely with American partners—a joint venture in which the Israelis would invest in breakthrough innovations, while the Americans would invest in marketing and sales. Still, without a bustling private venture capital industry in Israel, it was clear that too few of our burgeoning companies would succeed, which meant too little economic benefit would accrue. Creating a venture capital industry would require two things: an internal effort to create local incentives, and an external effort to get investments flowing into the country.
The internal effort centered on a simple principle: the way to bring venture capital to Israel is to make Israel an unusually attractive place to invest. We had to change the equation. And so we designed two programs—one called Yozma (which means “initiative”), the other called Inbal (which means “tongue of the bell”). They were distinct in design but similar in their general ambition: the government would take ownership of most of the risk of an investment but cede all of the reward to investors. These programs ignited entrepreneurship in Israel in the early 1990s, creating the first wave of substantial venture capital.
Of course, creating this mechanism was only part of the solution. The other was finding the actual investors. This was the equivalent of a massive diplomatic effort, one I eagerly championed for decades. I saw it as my role—and obligation—to attract foreign investment to Israel. When I traveled to the United States, I pressed upon diaspora Jews that it was time to invest in Israeli start-ups, that it was up to them, as much as all of us, to transform the economy for good. As foreign minister, I established diplomatic relationships around the world in pursuit of economic collaboration. When I met with leaders in Europe, I pushed to connect Israel’s state venture program to the government-supported funding mechanisms already in place in Europe. I spoke with those who might be open to importing Israeli technology for their own markets. When I met with the many hundreds of leaders of major companies, I would regale them with stories of the miracle of Israel, working to change their perception of the nation from only a tiny sliver of land in the desert to a cutting-edge technology powerhouse. In time, the strategy worked. The world’s most respected venture funds started opening offices in Israel. Israelis began building dozens of venture funds of their own. I no longer had to convince anyone of the greatness of Israel’s technology sector (not that it stopped me from telling the story). Israel’s economic reputation finally matched its scientific might.
•••
And yet, despite our success, standing still was not an option. There was a new argument to make now: not whether Israel was a high-tech leader, but where it should lead the world next.
Innovation, I understood, was not a mission to be completed, but a never-ending pursuit. We had created a system where investors were coming to us expecting pioneering technology. To keep them coming, we had to stay on the furthest frontier of science. As I’ve often said, it’s not enough to be up to date. We have to be up “to-morrow.”
And so, as I had done when I first discovered the computer and began to think about its military utility, I again turned to the research labs of Israel, taking countless meetings with scientists, reading journals and working papers, studying the latest developments, in search of the big idea that could set Israel apart.
It was through that process that I first learned about an emerging area of research that involved manipulating materials at the molecular level in an effort to assemble technology with atomic precision. It was called nanotechnology, and it was beyond anything I could have imagined. To begin with, scientists were working with matter the size of a nanometer, one hundred thousand of which could sit comfortable atop a single strand of human hair. Even more extraordinary, by working at the molecular level, scientists could develop materials that actually assembled themselves, in the very same way that molecules do all around us in nature—as when seeds turn into flowers in accordance with a biological code and scheme.
Nanotechnology was not destructive, but constructive—realigning atoms to produce new materials and
new ways to store and generate energy. It reminded me of Israel—in something so tiny, that power of the miraculous.
And though the science was still emerging, the implications were vast. Nanotechnology could allow us to master every sort of matter, and shape its attributes as we desired: we could create something thinner than air, stronger than iron, lighter than feathers. It held the potential to make computers the size of the head of a pin; to make robots so small they could travel inside the body and attack cancerous cells; to make body armor many times stronger than steel, but weighing no more than a plastic bag. It was the equivalent of the lightbulb or the transistor: a new technology that would be a basis for its own industry—and transform every other. I believed I was witnessing the beginnings of the most important revolution of science and technology in my lifetime.
This was the future. Ben-Gurion once told me that government is responsible for everything that exists, and I was responsible for everything that doesn’t. After more reading and research and conversations with experts, I decided that Israel must become the world leader in the development of nanotechnology. It was here, in this most minuscule of technologies, that I could see the grandest dreams of Israel becoming the centerpiece of the next scientific revolution, indispensable to all of the world.
I gathered my team right away to determine what would need to be done. What did we already have in place? What were we missing? What would it take to jump-start the effort?
What we learned was worrying. The following year, governments around the world were expected to invest more than $6 billion in nanotechnology research, with private companies expected to spend a similar amount. We had little time to spare. In the spring of 2002, I stood in the Knesset and gave the most impassioned speech I could deliver on the magic of nanotech, its scientific potential, the prosperity it could produce, and the risk in waiting to pursue it.