Capital Deepening and Brilliance of Startup Nation: What Growth Theory Tells Us |
Israel’s economy contracted by 3.5 per cent in the second quarter of 2025 as the Iran conflict shuttered businesses and cratered exports. By early 2026, the country had raised $6 billion in a three-tranche international bond offering — its first global issuance since the Gaza ceasefire — with pricing spreads narrowing close to pre-war levels. An economy that collapses and then snaps back with that velocity is revealing something about the deep structure of its growth model — something that the most powerful tools in economic theory can help us understand.
The tools I have in mind belong, in significant part, to a single Australian family. I first encountered them as an undergraduate, studying the Swan diagram in macroeconomics — that elegant framework for integrating internal and external balance that has shaped the thinking of generations of economists. Years later, my first academic appointment, at the age of twenty-five, took me to the Australian National University — Trevor Swan’s institution — where his name was still invoked on a regular basis in the staff tea lounge, not as history but as a living standard of intellectual seriousness. Trevor Winchester Swan — the foundation Professor of Economics at ANU and widely regarded as the greatest economic theorist Australia ever produced — published “Economic Growth and Capital Accumulation” in the Economic Record in 1956. Arriving simultaneously with Robert Solow’s parallel contribution at MIT, it established the Solow–Swan model: the foundational architecture of modern growth theory.
The Swan legacy branched — and flourished. Trevor’s son, Peter Swan AO, Emeritus Professor of Finance at the University of New South Wales, has sustained his father’s intellectual contribution across a distinguished career in corporate finance, market microstructure, and asset pricing. I had the pleasure of working with Peter at UNSW, and what struck me then — as it strikes me now — is the continuity of intellectual ambition: the same instinct for rigorous abstraction applied to real-world problems that defined Trevor’s work is unmistakable in Peter’s. His two-volume Palgrave collection on Trevor Swan’s work, published in 2023, is a landmark act of scholarly stewardship. Trevor’s daughter, Barbara Spencer, Professor Emeritus at the University of British Columbia’s Sauder School of Business and a Research Associate of the National Bureau of Economic Research, has forged her own formidable path. With over 12,000 Google Scholar citations and a past presidency of the Canadian Economics Association, Barbara is best known for the Brander–Spencer model of strategic trade policy — demonstrating how government subsidies to firms competing in oligopolistic export markets can shift profits from foreign to domestic producers. She also co-authored, with Robert Dimand, the definitive NBER........