Israel is a miraculous island. We're a democracy. We have to debate, discuss, convince, decide, usually by democratic vote if the issue is big enough, sometimes small enough, because we have real parliaments, real decision making, real division of powers, a real triangle of judiciary, executive and legislative bodies.

 

It's real. It's not just a one shot election, a majority vote. It's what's between these elections: human rights, civic rights protected by law, with real courts. The whole thing is real and you can see how real that is because right now, if you look at North Africa into the Middle East and further East, this is the only one stable, genuine, open, transparent democracy and therein lies our internal stability.

 

When we look around we see two huge convulsions. The second one is the regional one. I'll get to it in a minute. There's one before and it's not over. I mean the economic convulsion which is now wracking so many economies of the world. If I had to try to summarize that, it's the end of roughly 20 years of what are called leveraged economies, which means you borrow. You borrow above your means; you spend more than you bring in.

 

Eventually there's a gap, and if there's no-one to cover that gap, and there is no-one to cover the gap, all the air comes out and you have to make these vast cuts. It's very painful and it means that some of our traditional export markets are hit. We've been able to avoid that because we acted differently and more responsibly over the last decade and even before. But having done that, it doesn't protect us, because the vast Israeli empire is not that big a part of the world economy but that's our opportunity. That was a joke by the way, I don't want that. Who knows what they can do with snippets.

 

We know that we're small and depend on export markets, but that's our advantage. We have to continue to grow. Why do we have to continue to grow? Because of that second convulsion, the regional convulsion. If we are still in Moses' times, maybe Joseph's time - remember Joseph's interpretation of Pharaoh's dream? The seven bad years that follow the seven good years? Well, we've just had 30 good years. I can't tell you if we're in for 30 bad years, but I can say that what we've enjoyed in terms of peace and regional stability is not automatically guaranteed in the coming years, because there's an Islamist wave sweeping the Arab world and beyond. There are very few populations that are exempt from it.

 

The ones that are clearly exempt from it in this large expanse that I described, are two populations that have inherently pro-Western, pro-American, pro-liberal views of the world. One is Israel, and the other is Iran, the general population. Given the choice they would choose for that orientation. They were given a choice. They were given a choice some three years ago and they chose to oust that regime because they've experienced a radical Islamic regime.

 

They've experienced this night of darkness for 30 years and they don't want to continue this early medieval conception (I don't want to give medievalism a bad name. My father is a great medieval scholar and you should see some of the things that were produced), early medieval conceptions that denies women their rights, denies gays their rights, denies minorities and majorities their rights. This regime stole millions of votes and then clamped down on the people and they deny them their liberty.

 

Right now there is this wave that is sweeping the rest who have not yet travelled this road. A year ago or so, when this revolution began, people said you're not optimistic enough. I don't know what optimism is. I think optimism is being realistic and addressing things as they are. And we looked at it with sober eyes, and we said: it might go to the Google generation, but it might not. It might go to the Islamist direction. And by and large it has.

 

What it means for us is that it places enormous pressures on our security, on our defenses; it makes it that much harder to achieve any kind of progress with the Palestinian Authority because they are looking at half of their society that has already been overtaken by the Islamists and Iran, their patron. They pile precondition on precondition instead of getting into negotiations which we desire to have. But beyond that, what we see is such a huge transformation in our region that we know that we will have to spend a lot more to defend ourselves. We have. We just increased our defense budget by three billion shekels. That's a lot for us. But the defense establishment says: we want more. Its' like the joke about the rabbi. The Finance Ministry says we spend more, and they say they want more, and they're both right.

 

We need to defend ourselves. How are we going to get the money to defend ourselves? Because security costs and defense costs a lot of money. It's getting more and more expensive. How is Israel, this island of democracy that is surrounded by a sea of troubles, how is it going to defend itself? How are we going to fund these tremendous needs? And we have other needs as well, social needs, educational needs, health needs and so on.

 

How are we going to finance this? It's not going to come only from one place. I know that you have been stalwart in supporting Israel throughout and you have been an important mainstay of that continual American support for Israel which is of tremendous importance primarily in the military field, but that also means resources and I want to thank you for everything you've been doing up to now.

 

But even so, when you look at the needs you see that those spiraling needs are not going to be covered by foreign assistance. As much as I value the help of the United States and your participation and critical role in securing that partnership, and the fine work that you've been doing in that regard, all of you. As much as I would like to say that would cover it, it doesn't cover it, it can't possibly cover it. There's only one place that can cover it, and has covered it and that is the growth of the Israeli economy.

 

The Israeli economy has grown from a great cataclysm that we had here in the year 2002-2003, when it was actually contracting in real terms. We turned it around and within a year-and-a-half it grew in 5% and it continued to grow at 5% each year with the exception of 2008 when we had that brief crisis. That enabled us to fund our defense and increase our defense spending.

 

If we are to address our defense needs that we are being challenged with, we have to continue this growth. It is not a question of living standard. It's a question of national security. How is Israel going to continue to grow, when we have this other convulsion that I began to talk about, that you are familiar with. Our export markets in Europe are not exactly expanding. That's our primary export market.

 

How will we continue to grow? Number one: continue doing what we've been doing, which is foster a pro-business environment. In the last year this venerated establishment called Standard and Poor downgraded several important countries; it upgraded one, or maybe two, I don't know. But Israel was upgraded and I think this is important evidence of the value that the market economy addresses to Israel's pro-business and pro-growth policies. We've been very responsible with that. When you're responsible with that, it means you don't let your spending exceed, over time, your income.

 

But that's important, it dominates the political discussion, but it doesn't make you rich. You understand that, right? That controlling your national accounts does not make you rich; it just helps you avoid bankruptcy. If you keep your bank balance in check, it doesn't make you rich; it just makes the bank not close your account.

 

So in order to grow you have to do something else. You have to provide goods and services that make you more attractive, and this, for Israel, is not a privilege, it's not an option, it's something that we desperately need. So what are the other two areas that we can do, and are doing?

 

Number one: we're a tiny country; we're not a big country. We're a small economy, not tiny, we're about a quarter of a trillion dollars. That's something. But we have to be like a nimble mammal that finds its way in a perilous world. What we need is a tiny sliver of a huge market. That's all we need - a tiny sliver of a huge market. We're selling to China right now. What we're exporting to China is 2.5 billion dollars a year. That's less than what we export to Holland. Some potential there I think. India is another one.

 

President Peres just visited Vietnam, but the whole approach and entry of Israel into Asian markets can be materially increased very quickly, doubled, tripled, quadrupled. That would give us an edge to continuing this growth that we need. There is, with Asia, another advantage in a service that we can provide, a unique service. We've decided to build a rail-link between Asia and Europe to provide for the possible transport of cargos of goods that are produced in Asia that could be shipped to Europe. That's always useful in case there are queues or lines of other problems with the sea route of the Suez Canal.

 

Now it'll also enable us to have a two-hour transport, train transport from Tel Aviv to Eilat. That's very good. This was achieved, not at that speed, but this was achieved in the United States in the middle of the 19th century. I think that it's about time that we do this in the second decade of the twenty first century in Israel, but we will connect Eilat to Ashdod and Eilat to Tel Aviv and this changes Israel. It realizes a dream that David Ben-Gurion, our first Prime Minister spoke about, that is of having this access to the Negev, an access obviously means that we would also give European countries the sense of security and their Asian suppliers that a sense of security that a pipeline always exists for goods.

 

If I mention pipeline, there's another thing that we've discovered in the sea: gas. I mean it's eerie. Israel has energy supplies? It takes a while getting used to, but this is happening. And we have seven drills in the Mediterranean - seven strikes - seven hits. There are roughly another 50. And maybe Moses wasn't such a bad navigator after all.

 

And yes, we are talking to Cyprus about the possibility of joint projects because they're finding gas too in the Mediterranean. And  so we are looking also at the possibility of shipping this gas not only to Europe, because we have more than we need - a lot more, but also putting in a pipeline to a  liquefied gas facility in Eilat and shipping it to Asia. We want to have this - I can't say solidified interests - but we do want to have a very strong commercial and economic interest with the rising powers of Asia, I think that's important. It can help boost our economy.

 

The other thing we're doing is we're covering the country, quite apart from this with rapid rail and especially fast roads - fast roads, interchanges, soon you'll be able to drive down from Kiryat Shmona down to Beer Sheva and Eilat without seeing a traffic light. That too, is not something that should surprise Americans, but Israelis are flabbergasted. They can't believe that this is going to happen. It's happening.

 

Go to the Galilee, go to Eilat, you'll see that four-lane highway that is being built. We're connecting the country and simultaneously we're opening up land. And the one advantage we have to get Israel moving and growing, aside from using our brains and a free economy, with all the technology and all the start-ups that you're familiar with, we're also using our geopolitical position and our natural resources that are being found, but also using one of the greatest advantages that we have:  our impossible bureaucracy.

 

You see when you remove all the impediments, all the bureaucratic impediments to construction and development, then Israel can get a further bounce and all that decade of 5% growth annually was achieved without construction. Until recently, it was impossible to build anything in this country, let alone to plan. It takes you seven years, seven years to plan an apartment and then have it built. You see, you think it's a problem. I think it's a great opportunity. This means growth, tremendous growth.

 

So these three things: pro-business environment, the development of Asian markets, other markets as well, and the infrastructure that serves it and the development of roads and real estate; freeing up the real estate market, these can ensure us, can give us another 10-15 years, easily, of 5% growth and this will pay for our needs.

 

We have to have the economic base to continue to develop the country in every way: our social needs, our educational needs. Israel was just declared as having the second highest rate of post-secondary education in the world. Not bad, not bad, after Canada mind you. But we need more. We have to be the best all the time. We have to keep producing the Nobel Prize winners. We have to invest in education. We just did. We invested in our university. We invested now in grade school education and now in pre-grade school - free education from the age of three. We're just doing that this coming September. That all costs money. And the way we get the money is by the strategy of long-term growth along the three dimensions that I just described. That's crucial for our national security.

 

Well, what do we need the money for? What are the challenges that we face? We face four great challenges. They're a lot. They're more challenges than any other country faces on the face of this earth. The first is nuclear. There's so much talk about it that I'm not going to bore you with more details, so I'll move on to the next one.

 

The second one is the missile threat or to be more precise, missile and rocket threats against Israel. We have many tens of thousands of missiles and rockets that are aimed at our cities. We've had about 12,000 that have been fired on our cities and our communities. There is no other country that has sustained this. I think we are probably exceeding or approaching the payloads that were sustained - I don't think we've crossed that line yet, but were sustained by Britain in World War II. We're a tiny country. We are smaller than Belgium and as I said the good news is that we're bigger than Rhode Island, but roughly the size of New Jersey.

 

So that's not a simple thing. It's a big problem. To address the missile threat, we have developed technology and this technology is the Multi-layered Defense System, the anti-missile defense system which was quite miraculous when it was first tested under battle conditions just a few months ago, a year ago. It proved startlingly effective and it can give, not a full protection, but it can give us significant protection as does technology in terms of early warning for our citizens. There are ways of doing things that were not dreamed of as possible when the missile age began during the first Gulf War. There we had 41 rockets or forty-some rockets fired on Israel cities.

 

We had the entire country put on alert. Now we're able to pinpoint where the missiles are aimed at and we can give - if I said individualized alert through cell phones, I'd be exaggerating, but only a little. So we have both a passive defense and an active missile defense. The most effective is the active missile defense. That costs money but I think it serves the interests of Israel and the United States and its allies. I think it's a very important development.

 

The third threat that we face is cyber. Now you may not be aware of it, but everyone of the countries in the world can be hobbled by cyber attacks. You hear a little about it in the press. It's not even the tip of the tip of the tip of the iceberg. This is an era that we're entering into where entire societies can be paralyzed by cyber attack and Israel is no different. We are committed to being one of the three leading cyber powers of the world.

 

I think this is not an impossible goal. We started a cyber command and we'll certainly be among the top five. It's important that we stay there. We're investing in this. Again, it costs money, but we're doing it. To be able to defend our citizens, to defend our cities, to defend our banks, to defend our companies, to defend our military, to defend our citizens.

 

And the fourth threat that we have is the threat of having our borders penetrated. I don't mean just by terrorism. We're pretty adapted preventing that, but the possibility just of engulfment by illegal job immigrants. We believe in a global economy that counties should be able to trade, to exchange information, to exchange goods and services as freely as possible. But we think countries, especially Israel should be able to control its borders. We don't have a choice in that. We're only a country of roughly eight million people.

 

So if you have hundreds of thousands and potentially more cross into Israel, then we won't be able to safeguard the Jewish and democratic nature of our state. We want to be able to maintain both aspects of our national definition. To deal with that, we're completing a fence, a fence from Gaza to the Sinai in order to be able to defend Israel. That also costs money - a lot of money. It's not just the fence. It's the fence and the systems around it and so on. Israel has to defend itself.

 

So we've got four big challenges. There are many more, but the four big ones: nuclear, missile, cyber, the integrity of our borders. And all of them require ingenuity, they require dedication, hands-on management and they require money. I believe that with the means that I've described, we can achieve not only the financial but also the operational solutions that will enable us to defend the state and continue to develop it.

 

Now it seems like an impossible task because we're faced with so many, so many challenges. And the question is how can Israel sustain this? What I've described to you how we've sustained it so far and beaten the odds, but you sort of take a longer term perspective on this. We are people with a long memory and appreciation of history. And recently I read a book by a wonderful American writer by the name of Will Durant. How many of you read Will Durant? Michael, you and I and then that's it, oh, a few more. Will Durant was a wonderful writer of history and he wrote many decades ago, a book called "The Story of Civilization". I think it has roughly 11 or 12 volumes. It began with what he called our Oriental Heritage and moved through the centuries to the Greeks and the Romans. I think he ended with Napoleon.

 

In later years he was helped by his wife who was Jewish. Her name was Ariel. Wonderfully written; tremendous insights; just a work of art, but also a work of keen intelligence and perception. And I read quite a few of these books and I'm re-reading them. If you can imbibe some insights from people from very smart elderly historians, it's a habit that I picked up at home, that's not a bad idea. So I've read Durant over the years and then one day at Ron's house, I saw this small volume, the smallest book that Will Durant ever wrote. It's called "The Lessons of History".

 

He wrote it in 1960 when he was close to the end of his life. It's about 100 pages - not a lot. What did he distill from his study of history, his lifelong study of history? Well, I started reading it and it's a most amazing book. He's got statements like: "When Oriental fertility meets Western technology, China will be a leading power in the world."  1960, that's not bad. Okay? And on and on it goes - every sentence.

 

Now, this book has good news and bad news. Which do you want first? Well, when I'm asked that, I always want the bad news first because you know that the good news is only going to soften you up for the bad news. Right? So I'll give you the bad news. The bad news as Will Durant says after he studies thousands of years of history, he says, numbers count. The big nations usually win out over the small nations. Why? First of all he says they have a broad economic base from which they can build their military stocks and other reasons that they translate numbers into power. Numbers count. Big numbers count more.

 

Are there any exceptions? Well, he sort of gives us a favorable mention right on. The young State of Israel, he mentions, carried by cultural forces over time. So I want to tell you we are the exception. We're not only an exception; we are the exception, because we've been able to break these iron laws of history. We've been able to overcome our numbers. We've been able to multiply our products, to use our genius. Our people has the greatest number of Nobel Prize winners. I think proportionately, the Jewish people should based on their Nobel Prize recipients, should number about eight hundred to about nine hundred million.

 

We're fewer than that as you know. And Israel has the greatest number per capita of Nobel Prize winners and we're committed to ensure that we'll continue this way. We've used our genius to overcome and our initiative and our enterprise to overcome our numbers and we have a dedication, the cultural forces and the commitment to maintain our future. I have no doubt that what we achieved in these 63 years, we can continue to achieve in the coming century.

 

I have no doubt that we can defend ourselves against much more numerous forces; that we can advance the cause of a secure peace; in a secure democratic and vibrant state. We'll continue to build this democracy of ours. We'll continue to build and defend the one and only Jewish state, the State of Israel. And I want to thank you for helping us do that and we'll continue to do that.

 

Thank you very much.