Last
annotated on February 15, 2015
Introduction
what if you didn’t have to pay for the
battery when you bought the car and—as with any other fuel—spread the cost of
the battery over the life of the car? Electric cars could become at least as
cheap as gasoline cars, and the cost of the battery with the electricity to
charge it would be significantly cheaper than what people were used to paying
at the pump. Suddenly, the economics of the electric car would turn upside
down.
solution was infrastructure: wire
thousands of parking spots, build battery swap stations, and coordinate it all
over a new “smart grid.” In most cases, charging the car at home and the office
would easily be enough to get you through the day. On longer drives, you could
pull into a swap station and be off with a fully charged battery in the time it
takes to fill a tank of gas.
“Think cell phones. You go to a cell
provider. If you want, you can pay full price for a phone and make no
commitment. But most people commit for two or three years and get a subsidized
or free phone. They end up paying for the phone as they pay for their minutes
of air time.”
Israel, the country with the highest
concentration of engineers and research and development spending in the world,
In 2008, per capita venture capital
investments in Israel were 2.5 times greater than in the United States, more
than 30 times greater than in Europe, 80 times greater than in China, and 350
times greater than in India.
After the United States, Israel has more
companies listed on the NASDAQ than any other country in the world, including
India, Korea, Singapore, and Ireland,
Israel is the world leader in the
percentage of the economy that is spent on research and development.
Israel’s economy has also grown faster
than the average for the developed economies of the world in most years since
1995,
Why Israel and not elsewhere?
One explanation is that adversity, like
necessity, breeds inventiveness.
Israel’s tiny population is made up of
some seventy different nationalities. A Jewish refugee from Iraq and one from
Poland or Ethiopia did not share a language, education, culture, or history
According to the pioneering work of
Nobel Prize winner Robert Solow, technological innovation is the ultimate
source of productivity and growth.
Israelis are immune from the universally
high failure rate of start-ups. But Israeli culture and regulations reflect a
unique attitude to failure, one that has managed to repeatedly bring failed
entrepreneurs back into the system to constructively use their experience to
try again, rather than leave them permanently stigmatized and marginalized.
Persistence
Somewhere along the way—either at home,
in school, or in the army—Israelis learn that assertiveness is the norm,
reticence something that risks your being left behind.
Israeli attitude and informality flow
also from a cultural tolerance for what some Israelis call “constructive
failures” or “intelligent failures.” Most local investors believe that without
tolerating a large number of these failures, it is impossible to achieve true
innovation.
So long as the risk was taken
intelligently, and not recklessly, there is something to be learned.
What is said about Jews—two Jews, three
opinions—is certainly true of Israelis.
“The goal of a leader,” he said, “should
be to maximize resistance—in the sense of encouraging disagreement and dissent.
When an organization is in crisis, lack of resistance can itself be a big
problem. It can mean that the change you are trying to create isn’t radical
enough… or that the opposition has gone underground. If you aren’t even aware
that the people in the organization disagree with you, then you are in
trouble.”
They cared about the future of the whole
company; the fight wasn’t about winning a battle within Intel, it was about
winning the war with the competition.
A good idea alone could not have carried
the day against a seemingly intransigent management team. There had to be
willingness to take on higher authorities, rather than simply following
directives from the top.
You rarely see people talk behind
anybody’s back in Israeli companies. You always know where you stand with
everyone. It does cut back on the time wasted on bullshit.”
“it’s more complicated to manage five
Israelis than fifty Americans because [the Israelis] will challenge you all the
time—starting with ‘Why are you my manager; why am I not your manager?’
Battlefield
Entrepreneurs
Israeli army has very few colonels and
an abundance of lieutenants. The ratio of senior officers to combat troops in
the U.S. Army is 1 to 5; in the IDF, it’s 1 to 9.
This scarcity of manpower is also
responsible for what is perhaps the IDF’s most unusual characteristic: the role
of its reserve forces. Unlike in other countries, reserve forces are the
backbone of Israel’s military.
Israel’s reserve system is not just an
example of the country’s innovation; it is also a catalyst for it. Because
hierarchy is naturally diminished when taxi drivers can command millionaires
and twenty-three-year-olds can train their uncles, the reserve system helps to
reinforce that chaotic, antihierarchical ethos that can be found in every
aspect of Israeli society, from war room to classroom to boardroom.
“Israeli soldiers are not defined by
rank; they are defined by what they are good at.”
“The key for leadership is the soldiers’
confidence in their commander. If you don’t trust him, if you’re not confident
in him, you can’t follow him.
Assertiveness versus insolence;
critical, independent thinking versus insubordination; ambition and vision
versus arrogance—the words you choose depend on your perspective, but
collectively they describe the typical Israeli entrepreneur.
The
People of the Book
“More than any other nationality,” says
Outside, “[Israelis] have absorbed the ethic of global tramping with ferocity:
Go far, stay long, see deep.”
Israeli wanderlust is not only about
seeing the world; its sources are deeper. One is simply the need for release
after years of confining army service.
There is another psychological factor at
work—a reaction to physical and diplomatic isolation. “There is a sense of a
mental prison living here, surrounded by enemies,”
“The more you try to lock me in, the
more I will show you I can get out.” For the same reason, it was natural for
Israelis to embrace the Internet, software, computer, and telecommunications
arenas. In these industries, borders, distances, and shipping costs are
practically irrelevant.
This was a matter of necessity, rather
than mere preference or convenience.
Because Israel was forced to export to
faraway markets, Israeli entrepreneurs developed an aversion to large, readily
identifiable manufactured goods with high shipping costs, and an attraction to
small, anonymous components and software. This, in turn, positioned Israel
perfectly for the global turn toward knowledge-and innovation-based economies,
a trend that continues today.
By the time they are out of their
twenties, not only are most Israelis tested in discovering exotic opportunities
abroad, but they aren’t afraid to enter unfamiliar environments and engage with
cultures very different from their own.
Many of Israel’s globe-trotting
businesspeople are not just technology evangelists but endeavor to “sell” the
entire Israeli economy.
“a million high-tech conferences, on
multiple continents. I see Israelis like Medved give presentations all the
time, alongside their peers from other countries. The others are always making
a pitch for their specific company. The Israelis are always making a pitch for
Israel.”
Harvard,
Princeton, and Yale
While students in other countries are
preoccupied with deciding which college to attend, Israelis are weighing the
merits of different military units.
And just as students elsewhere are
thinking about what they need to do to get into the best schools, many Israelis
are positioning themselves to be recruited by the IDF’s elite units.
In Israel, about one year before
reaching draft age, all seventeen-year-old males and females are called to
report to IDF recruiting centers for an initial one-day screening that includes
aptitude and psychological exams, interviews, and a medical evaluation.
At the end of the day, a health and
psychometric classification is determined and service possibilities are
presented to the young candidate in a personal interview.
Candidates who meet the health, aptitude,
and personality requirements are offered an opportunity to take additional
qualifying tests for service in one of the IDF’s elite units or divisions.
Those who complete the training together
remain as a team throughout their regular and reserve service. Their unit
becomes a second family.
While it’s difficult to get into the top
Israeli universities, the nation’s equivalent of Harvard, Princeton, and Yale
are the IDF’s elite units. The unit in which an applicant served tells
prospective employers what kind of selection process he or she navigated, and
what skills and relevant experience he or she may already possess.
“In Israel, one’s academic past is
somehow less important than the military past.
The 8200 alumni association now has a national
reunion. But instead of using the time together to reflect on past battles and
military nostalgia, it is forward-looking. The alumni are focused on business
networking. Successful 8200 entrepreneurs give presentations at the reunion
about their companies and industries.”
As we’ve seen, the air force and
Israel’s elite commando units are well known for their selectivity, the
sophistication and difficulty of their training, and the quality of their
alumni. But the IDF has a unit that takes the process of extreme selectivity
and extensive training to an even higher level, especially in the realm of
technological innovation. That unit is Talpiot.
The professors approached then IDF chief
of staff Rafael “Raful” Eitan with a simple idea: take a handful of Israel’s
most talented young people and give them the most intensive technology training
that the universities and the military had to offer.
Started as a one-year experiment, the
program has been running continuously for thirty years. Each year, the top 2
percent of Israeli high school students are asked to try out—two thousand
students. Of these, only one in ten pass a battery of tests, mainly in physics
and mathematics. These two hundred students are then run through two days of
intensive personality and aptitude testing.
They also go through basic training with
the paratroopers. The idea is to give them an overview of all the major IDF
branches so that they understand both the technology and military needs—and
especially the connection between them.
Providing the students with such a broad
range of knowledge is not, however, the ultimate goal of the course. Rather, it
is to transform them into mission-oriented leaders and problem solvers.
Recently, some detractors have claimed
that the program is a failure because most of the graduates do not stay in the
military beyond the required nine years and do not end up in the IDF’s senior
ranks.
However, though Talpiot training is
optimized to maintain the IDF’s technological edge, the same combination of leadership
experience and technical knowledge is ideal for creating new companies.
Although the program has produced only
about 650 graduates in thirty years, they have become some of Israel’s top
academics and founders of the country’s most successful companies.
So the architects of Talpiot, Dothan and
Yatziv, vigorously reject the criticisms.
·
First,
they argue that the interservice competition for Talpions within the IDF—which
at times has had to be settled by the prime minister—speaks for itself.
·
Second,
they claim that the Talpions easily pay back the investment during their
required six years of service.
·
Third,
and perhaps most importantly, the two-thirds of Talpiot graduates who end up
either in academia or in technology companies continue to make a tremendous
contribution to the economy and society, thereby strengthening the country in
different ways.
Economic Co-operation and Development
(OECD), 45 percent of Israelis are university-educated, which is among the
highest percentages in the world. And according to a recent IMD World
Competitiveness Yearbook, Israel was ranked second among sixty developed
nations on the criterion of whether “university education meets the needs of a
competitive economy.”
By the time students finish college,
they’re in their mid-twenties; some already have graduate degrees, and a large
number are married. “All this changes the mental ability of the individual,”
Shainberg reasoned. “They’re much more mature; they’ve got more life
experience. Innovation is all about finding ideas.”
This maturity is especially powerful
when mixed with an almost childish impatience.
So for combat soldiers, connections made
in the army are constantly renewed through decades of reserve duty.
The social graph is very simple here.
Everybody knows everybody; everybody was serving in the army with the brother
of everybody; the mother of everybody was the teacher in their school; the
uncle was the commander of somebody else’s unit. Nobody can hide. If you don’t
behave, you cannot disappear to Wyoming or California. There is a very high
degree of transparency.”
“The military gets you at a young age
and teaches you that when you are in charge of something, you are responsible
for everything that happens… and everything that does not happen,”
“The phrase ‘It was not my fault’ does
not exist in the military culture.”
“The people you are serving with come
from all walks of life; the military is this great purely merit-based
institution in our society. Learning how to deal with anybody—wherever they
come from—is something that I leverage today in business when dealing with my
suppliers and customers.”
Junior commanders in America’s new wars
find themselves playing the role of small-town mayor, economic-reconstruction
czar, diplomat, tribal negotiator, manager of millions of dollars’ worth of
assets, and security chief, depending on the day.
There is a correlation between
battlefield experience and the proclivity of subordinates to challenge their
commanders.
While Israeli businesses still look for
private-sector experience, military service provides the critical standardized
metric for employers—all of whom know what it means to be an officer or to have
served in an elite unit.
Where
Order Meets Chaos
ABOUT THIRTY NATIONS have compulsory military
service that lasts longer than eighteen months. Most of these countries are
developing or nondemocratic or both. But among first-world countries, only
three require such a lengthy period of military service: Israel, South Korea,
and Singapore.
Singapore’s leaders have failed to keep
up in a world that puts a high premium on a trio of attributes historically
alien to Singapore’s culture: initiative, risk-taking, and agility.
Conscription, serving in the reserves,
living under threat, and even being technologically savvy are not enough. What,
then, are the other ingredients?
In the Israeli army, soldiers are
divided into those who think with a rosh gadol—literally, a “big head”—and
those who operate with a rosh katan, or “little head.”
Rosh katan behavior, which is shunned,
means interpreting orders as narrowly as possible to avoid taking on
responsibility or extra work.
Rosh gadol thinking means following
orders but doing so in the best possible way, using judgment, and investing
whatever effort is necessary. It emphasizes improvisation over discipline, and
challenging the chief over respect for hierarchy. Indeed, “challenge the chief”
is an injunction issued to junior Israeli soldiers, one that comes directly
from a postwar military commission that we’ll look at later.
“The debrief is as important as the
drill or live battle,”
Explaining away a bad decision is
unacceptable. “Defending stuff that you’ve done is just not popular. If you
screwed up, your job is to show the lessons you’ve learned. Nobody learns from
someone who is being defensive.”
Nor is the purpose of debriefings simply
to admit mistakes. Rather, the effect of the debriefing system is that pilots
learn that mistakes are acceptable, provided they are used as opportunities to
improve individual and group performance.
The entire Israeli military tradition is
to be traditionless. Commanders and soldiers are not to become wedded to any
idea or solution just because it worked in the past.
The victory in the 1967 Six-Day War was
the most decisive one Israel has ever achieved.
And yet, even in victory, the same thing
happened: self-examination followed by an overhaul of the IDF. Senior officials
have actually been fired after a successful war.
Large organizations, whether military or
corporate, must be constantly wary of kowtowing and groupthink, or the entire
apparatus can rush headlong into terrible mistakes.
Yet most militaries, and many
corporations, seem willing to sacrifice flexibility for discipline, initiative
for organization, and innovation for predictability. This, at least in
principle, is not the Israeli way.
Singapore differs dramatically from
Israel both in its order and in its insistence on obedience. Singapore’s
politeness, manicured lawns, and one-party rule have cleansed the fluidity from
its economy.
Fluidity, according to a new school of
economists studying key ingredients for entrepreneurialism, is produced when
people can cross boundaries, turn societal norms upside down, and agitate in a
free-market economy, all to catalyze radical ideas.
Thus, the most formidable obstacle to
fluidity is order.
The leading thinkers in this
area—economists William Baumol, Robert Litan, and Carl Schramm—argue that the
ideal environment is best described by a concept in “complexity science” called
the “edge of chaos.” They define that edge as “the estuary region where rigid
order and random chaos meet and generate high levels of adaptation, complexity,
and creativity.”
This is precisely the environment in
which Israeli entrepreneurs thrive. They benefit from the stable institutions
and rule of law that exist in an advanced democracy. Yet they also benefit from
Israel’s nonhierarchical culture, where everyone in business belongs to
overlapping networks produced by small communities, common army service,
geographic proximity, and informality.
An
Industrial Policy That Worked
A bitzu’ist is someone who just gets
things done. Bitzu’ism is at the heart of the pioneering ethos and Israel’s
entrepreneurial drive.
Today, at less than 2 percent of
Israel’s population, kibbutzniks produce 12 percent of the nation’s exports.
Historians have called the kibbutz “the
world’s most successful commune movement.”
Created as agricultural settlements
dedicated to abolishing private property and to complete equality, the movement
grew over the following twenty years to eighty thousand people living in 250
communities, but this still amounted to only 4 percent of Israel’s population.
The country’s disadvantage of having
some of its area taken up by a desert was turned into an asset.
Israel now leads the world in recycling
waste water; over 70 percent is recycled, which is three times the percentage
recycled in Spain, the country in second place.
the kibbutzniks found a way to use water
deemed useless not once, but twice.
In December 2008, Ben-Gurion University
hosted a United Nations–sponsored conference on combating desertification, the
world’s largest ever. Experts from forty countries came, interested to see with
their own eyes why Israel is the only country whose desert is receding.
The kibbutz story is just a part of the
overall trajectory of the Israeli economic revolution. Whether it was
socialist, developmentalist, or a hybrid, the economic track record of Israel’s
first twenty years was impressive.
it is clear that Israel’s economic
performance occurred in part because of the government’s meddling, and not just
in spite of it. During the early stages of development in any primitive
economy, there are easily identifiable opportunities for large-scale
investment: roads, water systems, factories, ports, electrical grids, and
housing construction.
But it is important not to generalize:
many developing countries engaged in large infrastructure projects waste vast
amounts of government funds due to corruption and government inefficiencies.
the economy had a limited capacity to
capitalize on the entrepreneurial talent that the culture and the military had
inculcated.
For the economy to truly take off, it
required three additional factors: a new wave of immigration, a new war, and a
new venture capital industry.
Immigration
Israel’s economic miracle is due as much
to immigration as to anything.
Israel is now home to more than seventy
different nationalities and cultures.
we were victims of anti-Semitism—you had
to be exceptional in your profession, whether it was chess, music, mathematics,
medicine, or ballet…. That was the only way to build some kind of protection
for yourself, because you would always be starting from behind.”
Walk into an Israeli technology start-up
or a big R&D center in Israel today and you’ll likely overhear workers
speaking Russian.
You don’t see what you’ve got to lose;
you see what you could win. That’s the attitude we have here—across the entire
population.”
“One or two generations back, someone in
our family was packing very quickly and leaving. Immigrants are not averse to
starting over. They are, by definition, risk takers. A nation of immigrants is
a nation of entrepreneurs.”
Israel became the only nation in history
to explicitly address in its founding documents the need for a liberal
immigration policy.
Unlike the U.S. Citizenship and
Immigration Service, which maintains as one of its primary responsibilities
keeping immigrants out, the Israeli Immigration and Absorption Ministry is
solely focused on bringing them in.
The
Diaspora
“whereas in China and in India there is
quite a bit of engineering work done, when it comes to pure innovation and
acquisition activity, Israel is still holding the front line.”
“brain circulation,” model of Israelis
going abroad and returning to Israel is one important part of the innovation
ecosystem linking Israel and the Diaspora.
So it has required creativity for Israel
to learn how to use its Diaspora community in order to catalyze its economy.
The
Buffett Test
Israelis are confident that their
start-ups will survive during war and turbulence.
Frohman announced that he was leaving
Intel to teach electrical engineering in Ghana. In his words, he was “looking
for adventure, personal freedom, and self-development”—another “person of the
Book.”
“The more they attack us, the more we
will succeed.”
Israelis, by making their economy and
their business reputation both a matter of national pride and a measure of
national steadfastness, have created for foreign investors a confidence in
Israel’s ability to honor, or even surpass, its commitments.
Yozma
In the West, the role of the venture
capitalist is not simply to provide cash. It’s mentoring, plus introductions to
a network of other investors, prospective acquirers, and new customers and
partners, that makes the venture industry so valuable to a budding start-up. A
good VC will help entrepreneurs build their companies.
in the late 1980s. “While Israel was
very good at developing technologies, Israelis didn’t know how to manage
companies or market products.”
Mlavsky called BIRD a kind of “dating
service,” because he and his team played matchmaker between an Israeli company
with a technology and an American company that could market and distribute the
product in the United States. Not only that, but this matchmaker would
subsidize the cost of the date.
Mlavsky recalls, “We came to [U.S.
companies] and said, ‘There is this place called Israel, which you may or may
not have heard of. We can put you in touch with smart, creative, and
well-trained engineers there. You don’t have to pay to hire them, relocate
them, and you don’t have to worry about what happens after the project is over.
We will not only introduce you to such a group—we’ll give you half the money
for your part of the project and half the money the Israelis will need for
their part.”
To date, BIRD has invested over $250
million in 780 projects, which has resulted in $8 billion in direct and
indirect sales.
The idea was for the government to
invest $100 million to create ten new venture capital funds. Each fund had to
be represented by three parties: Israeli venture capitalists in training, a
foreign venture capital firm, and an Israeli investment company or bank. There
was also one Yozma fund of $20 million that would invest directly in technology
companies.
The Yozma program initially offered an
almost one-and-a-half-to-one match. If the Israeli partners could raise $12
million to invest in new Israeli technologies, the government would give the
fund $8 million. There was a line around the corner. So the government raised
the bar. It required VC firms to raise $16 million in order to get the
government’s $8 million.
The real allure for foreign VCs,
however, was the potential upside built into this program. The government would
retain a 40 percent equity stake in the new fund but would offer the partners
the option to cheaply buy out that equity stake—plus annual interest—after five
years, if the fund was successful. This meant that while the government shared
the risk, it offered investors all of the reward. From an investor’s
perspective, it was an unusually good deal.
And it was also rare for a government
program to actually disappear once it had served its initial purpose, rather
than continue indefinitely.
A reform happens when you change the
policy of the government; a revolution happens when you change the mind-set of
a country.
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.”
Betrayal
and Opportunity
The major increase in military R&D
that followed France’s boycott of Israel gave a generation of Israeli engineers
remarkable experience. But it would not have catalyzed Israel’s start-up
hothouse if it had not been combined with something else: a profound
interdisciplinary approach and a willingness to try anything, no matter how
destabilizing to societal norms.
From
Nose Cones to Geysers
It’s not surprising that multitasking,
like many other advantages Israeli technologists seem to have, is fostered by
the IDF. Fighter pilot Tal Keinan told us that there is a distinct bias against
specialization in the Israeli military.
The IAF could not pull off a system like
this even if it had the resources; it would just be a big mess. We’re not
disciplined enough.”
“It’s not as effective, but it’s a hell
of a lot more flexible.”
In the Israeli system, each pilot learns
not only his own target but also other targets in separate formations.
in Israel the titles are kind of
arbitrary, really, because they are interchangeable in some ways and people do
work on more than one thing.
the latest generation of PillCams
painlessly transmit eighteen photographs per second, for hours, from deep
within the intestines of a patient. The video produced can be viewed by a
doctor in real time, in the same room or across the globe.
The story of Given Imaging is not just
one of technology transfer from the military to the civilian sectors, or of an
entrepreneur emerging from a major defense technology company.
Mixing missiles and pills, jets and
inhalers may seem strange enough,
It is a product of the multidisciplinary
backgrounds that Israelis often obtain by combining their military and civilian
experiences. But it is also a way of thinking that produces particularly
creative solutions and potentially opens up new industries and “disruptive”
advances in technology. It is a form of free thinking that is hard to imagine in
less free or more culturally rigid societies, including some that superficially
seem to be on the cutting edge of commercial development.
The
Sheikh’s Dilemma
Margalit has converted a printing house
into the headquarters for a burgeoning animation company, Animation Lab, which
aims to compete with Pixar and others in the production of full-length animated
films.
Jerusalem might seem like the last place
to build a world-class movie studio. As a center for the three monotheist
religions, the ancient city of Jerusalem is about as different from Hollywood
as one could imagine. Filmmaking is not an Israeli specialty, though Israeli
movies have recently been prominently featured in international film festivals.
Further complicating matters is the fact that the Israeli arts scene is
centered in secular Tel Aviv, rather than Jerusalem, known more for holy sites,
tourists, and government offices. But Margalit’s vision for creating companies,
jobs, industries, and creative outlets was specifically a vision for Jerusalem.
This cultural commitment can be central
to the success of economic clusters, of which Israel’s high-tech industry is a
case in point.
A cluster, as described by the author of
the concept, Harvard Business School professor Michael Porter, is a unique
model for economic development because it’s based on “geographic
concentrations” of interconnected institutions—businesses, government agencies,
universities—in a specific field.1 Clusters produce exponential growth for
their communities because people living and working within the cluster are in
some way connected to each other.
Porter argues that an intense
concentration of people working in and talking about the same industry provides
companies with better access to employees, suppliers, and specialized
information. A cluster does not exist only in the workplace; it is part of the
fabric of daily life, involving interaction among peers at the local coffee
shop, when picking up kids from school, and at church. Community connections
become industry connections, and vice versa.
As Porter says, “the social glue” that
binds a cluster together also facilitates access to critical information. A
cluster, he notes, must be built around “personal relationships, face-to-face
contact, a sense of common interest, and ‘insider’ status.”
Though Israel was already well into its
high-tech swing by then, the ICQ sale was a national phenomenon. It inspired
many more Israelis to become entrepreneurs. The founders, after all, were a
group of young hippies. Exhibiting the common Israeli response to all forms of
success, many figured, If these guys did it, I can do it better. Further, the
sale was a source of national pride, like winning a gold medal in the world’s
technology Olympics. One local headline declared that Israel had become an
Internet “superpower.”
In the best-selling book Built to Last,
business guru James Collins identifies several enduring business successes that
all have one thing in common: a core purpose articulated in one or two
sentences. “Core purpose,” Collins writes, “is the organization’s fundamental
reason for being. [It] reflects the importance people attach to the company’s
work… beyond just making money.”
Collins describes Israel’s core purpose
as “to provide a secure place on Earth for the Jewish people.” Building
Israel’s economy and participating in its cluster—which are interchangeable—and
pitching it to the most far-flung places in the world are what in part
motivates Israel’s “profitable patriots.”
So what are the barriers to an Arab “start-up
nation”? The answer includes oil, limits on political liberties, the status of
women, and the quality of education.
The United Nations’ Arab Human
Development Report, which presented the organization’s research from 2002
through 2005, found that the number of books translated annually into Arabic in
all Arab countries combined was one-fifth the number translated into Greek in
Greece.
The number of patents registered between
1980 and 2000 from Saudi Arabia was 171; from Egypt, 77; from Kuwait, 52; from
the United Arab Emirates, 32; from Syria, 20; and from Jordan, 15—compared with
7,652 from Israel.
The Arab world has the highest
illiteracy rates globally and one of the lowest numbers of active research
scientists with frequently cited articles.
In 2003, China published a list of the
five hundred best universities in the world; it did not include a single
mention of the more than two hundred universities in the Arab world.
Today, Israel has eight universities and
twenty-seven colleges. Four of them are in the top 150 worldwide universities
and seven are in the top 100 Asia Pacific universities. None of them are
satellite campuses from abroad. Israeli research institutions were also the
first in the world to commercialize academic discoveries.
Israel, a nation of immigrants, has
continually been dependent on successive waves of immigration to grow its
economy. It is in large part thanks to these immigrants that Israel currently
has more engineers and scientists per capita than any other country and produces
more scientific papers per capita than any other nation—109 per 10,000 people.
Jewish newcomers and their non-Jewish
family members are readily granted residency, citizenship, and benefits. Israel
is universally regarded as highly entrepreneurial and—like the IDF—dismissive
of the strictures of hierarchy.
One of the major challenges to a
high-growth entrepreneurial culture elsewhere in the Arab world—beyond just the
gulf—is that the teaching models in primary and secondary schools and even the
universities are focused on rote memorization.
This emphasis on standardization has
shaped an education policy that defines success by measuring inputs rather than
outcomes.
international evidence suggests that low
student-teacher ratios correlate poorly with strong student performance and are
far less important than the quality of the teachers.
Focusing on the number of teachers has
particularly harmful implications for boys in the Arab world. Many government
schools are segregated by gender: boys are taught by men, girls by women. Since
teaching positions have traditionally been less appealing to men, there is a
shortage of teachers for boys. As a result of the smaller talent pool, boys’
schools often employ lower-quality teachers. In fact, the GCC gender gap in
student performance is among the most extreme in the world.
Finally, a perhaps even larger factor in
the limit on high-growth entrepreneurial economies is the role of women.
Harvard University’s David Landes,
author of the seminal book The Wealth and Poverty of Nations, argues that the
best barometer of an economy’s growth potential lies in the legal rights and
status of its women.
This kind of distortion makes an economy
inherently uncompetitive, and it is the result of the subordinated economic
status of women in the Arab world.
Threats
to the Economic Miracle
In addition to an overdependence on
global venture capital, Israeli companies are also overdependent on export
markets.
A little over half of Israel’s workforce
contributes to the economy in a productive way, compared to a 65 percent rate
in the United States.
The low Israeli workforce participation
rate is chiefly attributable to two minority communities: haredim, or
ultra-Orthodox Jews, and Israeli Arabs.
Among mainstream Israeli Jewish
civilians aged twenty-five to sixty-four, to take one metric, 84 percent of men
and 75 percent of women are employed. Among Arab women and haredi men, these
percentages are almost flipped: 79 percent and 73 percent, respectively, are
not employed.
The result of this has been triply
harmful to the economy. Haredim are socially isolated from the workforce
because of their lack of army experience; plus, since they are not allowed to
work if they want a military exemption—they have to be studying—as young adults
they receive neither private-sector nor military (entrepreneurial) experience;
and thus haredi society becomes increasingly dependent on government welfare
payments for survival.
There are two primary reasons why
Israeli Arabs have low participation rates in the economy.
·
First,
because they are not drafted into the army, they, like the haredim, are less
likely to develop the entrepreneurial and improvisational skills that the IDF
inculcates.
·
Second,
they also do not develop the business networks that young Israeli Jews build
while serving in the military, a disparity that exacerbates an already
long-standing cultural divide between the country’s Jewish and Arab
communities.
Each year, thousands of Arab students
graduate from Israel’s technology and engineering schools. Yet, according to
Helmi Kittani and Hanoch Marmari, who codirect the Center for Jewish-Arab
Economic Development, “only a few manage to find jobs which reflect their
training and skills…. Israel’s Arab graduates need to be equipped with a
crucial resource which the government cannot supply: a network of friends in
the right places.”
Women Against Violence director Aida
Touma-Suleiman said that she sees men as partners for change, including a new
acceptance of women who work outside the home. “There are Arab men who are
unhappy with this balance of power, and wish to improve the relations between
the genders. They see it as in their interest as much as anyone else’s,” she
said.
Yet because of the high birth rates in
both the haredi and the Arab sectors, efforts to increase workforce
participation in these sectors are racing against the demographic clock.
According to Israel 2028, the report issued by an official blue-ribbon
commission, the haredi and Arab sectors are projected to increase from 29
percent of Israel’s total population in 2007 to 39 percent by 2028. Without
dramatic changes in workforce patterns, this shift will reduce labor-force
participation rates even further. “The existing trends are working in stark
opposition to the desired development,” the report warns.
But the point that Israel can, should,
and must grow its economy faster is crucial. Of all the threats and challenges
facing Israel, an inability to keep the economy growing is perhaps the
greatest, since it involves overcoming political obstacles and giving attention
to neglected problems.
Israel has a rare, maybe unique,
cultural and institutional foundation that generates both innovation and
entrepreneurship; what it lacks are policy fixes to further amplify and spread
these assets within Israeli society. Fortunately for Israel, it is probably
easier to change policies than it is to change a culture, as countries like
Singapore demonstrate.
As the New York Times’ Thomas Friedman
put it, “I would much rather have Israel’s problems, which are mostly
financial, mostly about governance, and mostly about infrastructure, rather
than Singapore’s problem because Singapore’s problem is culture-bound.”
Farmers
of High Tech
“Agriculture is more revolutionary than
industry,”
“In twenty-five years, Israel increased
its agricultural yields seventeen times. This is amazing,” he told us. People
don’t realize this, Peres said, but agriculture is “ninety-five percent
science, five percent work.”
“Ben-Gurion thought the future was
science. He would always say that in the army it’s not enough to be up to date;
you have to be up to tomorrow,” Peres recalled.
As of 2005, Israel was the world’s
tenth-largest producer of nuclear patents.
Today, Israel leads the world in the
percentage of its GDP that goes to research and development, creating both a
technological edge critical to national security and a civilian tech sector
that is the main engine of the economy. The key, however, is the way the
entrepreneurial nation building Peres embodies has morphed into a national
condition of entrepreneurship.
Indeed, what makes the current Israeli
blend so powerful is that it is a mashup of the founders’ patriotism, drive,
and constant consciousness of scarcity and adversity and the curiosity and
restlessness that have deep roots in Israeli and Jewish history.
“The greatest contribution of the Jewish
people in history is dissatisfaction,” Peres explained. “That’s poor for
politics but good for science.
What makes Israel so innovative and
entrepreneurial?
It consists of the tight proximity of
great universities, large companies, start-ups, and the ecosystem that connects
them—including everything from suppliers, an engineering talent pool, and
venture capital. Part of this more visible part of the cluster is the role of
the military in pumping R&D funds into cutting-edge systems and elite
technological units, and the spillover from this substantial investment, both
in technologies and human resources, into the civilian economy.
Vilpponen about the start-up scene in
Finland, he lamented, “Finns produce lots of technology patents but we have
failed to capitalize on them in the form of start-ups.
In addition to the institutional
elements that make up clusters—which Finland, Singapore, and Korea already
possess—what’s missing in these other countries is a cultural core built on a
rich stew of aggressiveness and team orientation, on isolation and
connectedness, and on being small and aiming big.
And when you complete your military service,
everything you need to launch a start-up will be a phone call away, if you have
the right idea. Everyone knows someone in his or her family, university, or
army orbit who is an entrepreneur or understands how to help. Everyone is
reachable by cell phone or e-mail. Cold-calling is acceptable but almost never
fully cold; almost everyone can find some connection to whomever he or she
needs to contact to get started.
What in most countries is somewhat
exceptional in Israel has become an almost standard career track, despite the
fact that everyone knows that, even in Israel, the chances of success for
start-ups are low. It’s okay to try and to fail. Success is best, but failure
is not a stigma; it’s an important experience for your résumé.
renewable resource. Unlike finite
natural resources, ideas can spread and benefit whichever countries are best
positioned to take advantage of them, regardless of where they were invented.
George Bernard Shaw wrote, “If you have an apple and I have an apple and we exchange
apples, then you and I will still each have one apple. But if you have an idea
and I have an idea and we exchange these ideas, then each of us will have two
ideas.”
while
other democracies have no reason to institute a military draft like Israel’s, a
mandatory or voluntary national service program that is sufficiently
challenging could give young college-age people—before they begin
college—something like the leadership, teamwork, and mission-oriented skills
and experience Israelis receive through military service. Such a program would
also increase social solidarity and help inculcate the value of serving
something larger than oneself, whether a family, a community, a company, or a
nation. And when U.S. military men and women, for example, are transitioning to
civilian life, they should not be advised to deemphasize their military
experience when applying for a job.
