In June 2019, I finished Start-up Nation: The Story of Israel’s Economic Miracle by Dan Dan Senor and Saul Singer.
It is a book of Israel’s remarkable economic progress. It’s successes, failures, strengths, and weaknesses it should work on.
Israel is a controversial country. Many people have strong feelings about it. There are those who regard the country as divinely-backed on one extreme. That 40% of its people are secular is usually not enough for them to rethink this belief. On the other extreme are those who see the nation as an imposition by foreign powers on the Arab world, and as such is a parasite to be exterminated. Well…
What this book succeeded in showcasing is a country that has a lot of lessons that any country can adopt — friend or foe. It was therefore not surprising to know that a number of business and government leaders, including in the Arab world, have been quietly studying Israel.
Why are they studying Israel? Well…for one, it is a very entrepreneurial country boasting the highest density of start-ups in the world (a total of 3,850 start-ups, one for every 1,844 Israelis). More Israeli companies are listed on the NASDAQ exchange than all companies from the entire European continent.
It is also a highly educated country, especially in STEM. It has more engineers and scientists per capita than any other country and produces more scientific papers per capita than any other nation.
Perhaps the most astounding thing about Israel is how shock and disaster proof its economy has proven to be from external factors. It’s as if disasters turbocharge it. From 1948 to 1970, when Israel was fighting three full-scale wars with its population growing fivefold, its per capita GDP multiplied four times.
During the recession of 2008 when cashflow for capital investment dwindled, Israel was the only Western country to experience a meaningful increase in venture capital from 2007 to 2008. 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.
Comparing absolute numbers, Israel — a country of just 7.1 million people — attracted close to $2 billion in venture capital, as much as flowed to the United Kingdom’s 61 million citizens or to the 145 million people living in Germany and France combined.
Yet, it had its fair share of self-sabotage. With prosperity in its early founding days came big government to the extent that the Israeli government had full and complete monopoly of the capital market. It was illegal to change dollars anywhere except at banks, which charged government-set exchange rates.
Even holding an overseas bank account was illegal. Debt ballooned. Inflation rose — getting to 445 percent. They had to ration food. Households were on queue for months before they got telephone lines. The entire country had a single government-owned station broadcasting and you can guess the quality. It lost an entire decade to this implosion.
But fortunately, it realized its folly and sought outside help, in this case IMF with the active support of the United States.
But the recovery would not have been as fast without the underlying cultural advantages the country has.
In Israel, pretty much everyone serves in the military before going to college, where its culture of patriotism, teamwork, dissatisfaction, innovation, and antihierarchy is worked into Israel’s citizens over a compulsory two- to three-year service.
The structure of the military service is so good that Lee Kwan Yew’s Singapore sought the help of Israel to create and develop its conscription-based military institutions.
And it is the minor segment of the Israeli population who are excepted from this military service for religious and political reasons who form Israel’s economy’s biggest threat going into the future. The ultra-Orthodox Jews (Haredi) and Israeli Arabs are not drafted to the army, and so miss the opportunity to develop the entrepreneurial and improvisational skills that the Israeli Defence Force inculcates.
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.
Yet because of the high birth rates in both the haredi and the Arab sectors, the increasingly dependent of these groups on government welfare payments for survival will only continue to grow, considering they will make up as much as 40% of the population by 2028.
It is difficult for a neutral to flip the last page of this book without being overwhelmed with the progress this small nation had made and continue to make, owing largely to the foundation laid by its founding fathers, especially the visionary David Ben-Gurion.
It’s becoming a cliché that challenges are the springboards of success, but the nation of Israel embodies this cliché.
What lessons will your nation pick from Israel?