Israel Shows Its Neighbors How

Israel is getting its economic house in order. The startling success of its high-tech companies reflects a newly charged entrepreneurial business culture. The country is also shedding much of the socialist baggage that has weighed down its economy for decades. Gone are the days of triple-digit inflation, reckless trade unions, and stifling bureaucracy. For the first time, leading politicians across the spectrum back private-sector initiatives--even if they noisily disagree on practically everything else.

Better yet, Israel is losing no time taking economic advantage of the Middle East peace process. The transformed geopolitical map means Israeli entrepreneurs are breaking into markets where they once were barred, such as China and India. Trade with Asia is booming. And companies that once shunned Israel--such as Sweden's L.M. Ericsson--are gpening up offices and factories.

Israel's Arab neighbors should take heed. The dead weight of bureaucracy and the absence of real political democracy in Egypt, Jordan, Lebanon, and Syria--Israel's immediate neighbors--are stifling economic initiative and growth. A mere decade ago, the combined gross domestic product of those four Arab nations was much larger than Israel's. Today, Israel's GDP is 11/2 times that of those four countries combined.

If the Arab statist regimes don't liberate their economies, they will fall further behind the rest of the world. As for Israel, it should ignore calls to cast aside peace negotiations, no matter how tempting. A high-tech Fortress Israel is not tenable in the long run.

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