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The story of Israel's economic miracle, the subtitle of Start-Up Nation, could date back to the late 1800's when recent Eastern European immigrants to Ottoman controlled Palestine began a process of innovative economic thinking by establishing the kibbutz movement. Although rooted in socialist (and in some cases pure communist) ideology, the kibbutz was one contributing factor to the Israeli sense of joint effort and the fundamental notion of shared interests. Moreover, during the time of the British mandate and into the early years of Israeli statehood, the kibbutz served as a driver for the budding Israeli economy, providing both the agricultural base and the roots of an emerging industrial capacity.
But originating as it did in the socialist movement, the influence of the kibbutz on the overall Israeli economy served to cause a bloated and costly public sector and establish government control or interference in every aspect of the economy. By the mid-1980's the country's economy was in shambles with runaway inflation. Clearly it was time for a new miracle.
Start-Up Nation begins its story after the time when the Israeli economy emerged from its malaise, underwent a process of privatization, and began a new economic chapter as an innovation powerhouse.
So what factors came together to cause this dramatic, or as the authors position it, miraculous, economic transformation? As the book so ably chronicles, the current state of the Israeli economy is due to a confluence of factors that came together at the right time and in a place (Israel) that was culturally and structurally prepared to accept and exploit them.
One of the events that helped spark the rebirth of the Israeli economy was the mass immigration of Jews from the former Soviet Union, many of whom were engineers and found themselves, for the first time, in an environment that not only greeted but supported new ideas.
It is this openness to new ideas that the authors credit with driving the Israeli economy. The roots of this openness come from what is described as an informality within the society that allows for and accepts (and the authors would claim even encourages) subordinates to question and challenge the status quo. Combine this with what so many have come to call "chutzpah" - the confidence to argue a point and insist on its virtue and merit - and you have an environment in which ideas flow from all directions and new ideas are evaluated in an accepting and exploratory spirit.
Another contributing factor in creating the open environment for the free flow of ideas is the army. The authors point to the army, which is mandatory in Israel, as the great equalizer - that is, bringing people from all socio-economic and ethnic backgrounds together within a structure that creates equality (and in some cases reverses civilian status, such as when a CEO enters the reserves and has a school teacher as a commanding officer). The army also serves to establish a common bond and sense of joint purpose which many Israelis bring into the workforce, carrying forward their commitment to the success of their company, much as they did the success and safety of their army unit.
Certainly a point, touched on by the authors that might have been further discussed is the army as a source of innovation. Many of the technology innovations commercialized by Israeli companies have their roots in military applications and many of the great innovators are graduates of some of the army's elite technology units. The authors share the story of Fraud Sciences, an Israeli company eventually acquired by eBay. The young entrepreneurs at Fraud Science were graduates of the military's most elite technology unit and were commercializing a technology used by the army to identify terrorists through online activity (the Fraud Science model adopts the technology to spot credit card fraud). The authors use the example to highlight the chutzpah of the young entrepreneurs who boldly claim (and later verify) that their technology can accomplish a feat thought to be impossible by seasoned industry executives. This image of the young Israeli, clad in jeans and unshaven, stating almost matter-of-factly that he can achieve something the American businessman, dressed in a suit, suspects is impossible, serves to relay volumes on the confidence of young Israeli high technology entrepreneurs as well as their abilities to back up their bold claims. The Fraud Science example also illustrates how the military serves as a major driver for technology innovation, both as a customer (for technologies with military applications that are later transformed for civilian uses) and as an incubator, bringing the best and the brightest talent together.
The university system and the academic activity of Israel's professors (ranked number one in the world by a British study) are also cited as contributing factors to Israel's dynamic economy, with all universities engaged in research and development projects that are licensed to companies for commercialization. These include some significant breakthroughs in medical technology, computers, telephony, and security.
The authors also give credit to the government and its establishment of programs designed to promote and support entrepreneurship. The authors highlight the government initiative Yozma, which served as the mentor to promote and encourage the launch of Israel's high technology based economy. The Yozma example led to the establishment of technology incubators funded by municipalities and public-private alliances that served to create models to support innovation and the commercialization of innovation.
In an interesting chapter that explains one of the key differentiating factors between Israel and other successful economies, the authors demonstrate how the Israeli economy benefits from an ideological mission many leading businessmen assume whenever they travel abroad - making them "ambassadors" for Israel. The profile offered is of Jonathan Medved, a founder of one of the early venture capital funds in Israel, Israel Seed, and now leading a technology company called Vringo. Mr. Medved, originally from California, travels often for business purposes, always carrying with him presentations on why businesses should base R&D branches in Israel. Indeed, almost every major technology company seems to be following Mr. Medved's advice.
The strength of Start-Up Nation is that it makes no apologies and achieves what it sets out to be - a celebration of the economic success (or "miracle") that Israel has become and a treatise on the factors that contributed to this success. It is a feel-good book that delivers on its mission - reading Start-Up Nation makes the reader feel pride, joy, wonderment.
With this in mind, it is somewhat of a shame that the authors felt the need to expand the scope of their discussion to include chapters on the Jewish Diaspora and potential threats to the health of the economy. In keeping with their positive view the authors minimize some contributions and whitewash some threats.
In discussing the Diaspora the authors discuss the success of Israelis within U.S. companies like Cisco and Intel, and, rather oddly, recap the relatively well known story of U.S. businessmen aiding Israel in acquiring combat aircraft just prior to the 1948 War of Independence (a story well told in the book The Pledge by Leonard Slater).
The role of the Diaspora in Israel's economy could be told from many different angles, including Diaspora Jews who move to Israel and become successful entrepreneurs (like Jon Medved), the role of Diaspora Jews in supporting and funding Israeli companies (both as institutional and individual investors), and perhaps even the burden removed from the Israeli economy through the influx of charitable dollars that help support social services, hospitals and the very same universities contributing to entrepreneurship.
Similarly, in the chapter on threats, rather than delve into some fundamentals of the economy that could cause difficulties, the authors instead discuss global economic trends and how the downturn could eventually affect Israel as well. Yet there are issues that Israel needs to confront with the same innovation and pursuit of excellence with which it built its economy like high taxes, a still bloated public sector (and the growing burden of civil service and military pensions), a large portion of children living under the poverty level (reportedly 30% by some charitable organizations), and an extremely lopsided distribution of wealth. Including these might have served to stimulate the dialogue and help lead toward solutions.
Start-Up Nation is a well written book that tells the story of a country under siege that - yet again - after making the desert bloom, absorbing tremendous numbers of immigrants in the 1940's, establishing a society that blends cultures from all over the world, creating a world class military, and once again absorbing a 20% growth in population in the 1980's - transforms itself into a global powerhouse through innovation and courage. It is another chapter in the triumph of the human spirit provided to us by the Israeli people and cause for all of us to marvel.
Start-Up Nation is a happy book. And that's something we can all feel good about.
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