A Military Can Do Wonders for an Economy
Understanding Israel's economic miracle.


Why is Israel so economically successful? Dan Senor and Saul Singer go beyond stereotypes and beyond the continuing Mideast conflict to analyze this question in their new book, Start-up Nation: The Story of Israel’s Economic Miracle. Senor, a former Bush-administration official in Iraq, took questions from National Review Online’s Kathryn Jean Lopez on what Israel’s done right, what stands in her way, and how we can learn a little from our ally.

KATHRYN JEAN LOPEZ: What’s so special about Israel?

DAN SENOR: Israel represents the highest concentration of innovation and entrepreneurship in the world today: the most start-ups per capita; the highest percentage of GDP invested in civilian R&D; more companies on NASDAQ than all of Europe, Korea, Japan, India, and China combined; and the biggest destination for global venture capital per capita. Israel raises 2.5 times as much global venture capital as the U.S., 30 times more than Europe, 80 times more than India, and 350 times more than China — and these numbers are from 2008, when the world was in the midst of an economic meltdown. Israel all but escaped the crisis that ripped through economies everywhere else.

LOPEZ: What makes Israel an economic miracle? What’s most impressive?

DAN SENOR: The jaw-dropping data above would be impressive for any country, but to accomplish all this while under a near-total regional economic boycott, under physical attack, and absorbing millions of refugees in a tiny country with no resources is hard to comprehend.

LOPEZ: What’s the secret of its success?

DAN SENOR: Our book dives into many interacting factors, but one of the most important is the training and battlefield experience that most Israelis receive in the military. The military is where many Israelis learn to lead and manage people, improvise, become mission-oriented, work in teams, and contribute to their country. They tend to come out of their years of service (three for men, two for women) more mature and directed than their peers in other countries. They learn “the value of five minutes,” as one general told us. They even learn something more uniquely Israeli: to speak up — regardless of ranks and hierarchy — if they think things can be done better.

LOPEZ: Where has Israel fallen behind?

DAN SENOR: The non-tech portion of the economy is overconcentrated, overregulated, and overtaxed, and has consequently performed at a mediocre level. If the conditions that have allowed the high-tech sector to flourish were applied to the rest of the economy, Israel could grow even faster. If Israel also were to address the low labor-force-participation rates in certain demographics, we agree with Prime Minister Netanyahu that Israel could become one of the top ten largest economies in the world.

LOPEZ: Has this been an ethical success story?

DAN SENOR: We believe that the free-market system is progressively eliminating the extreme poverty that was the lot of the world throughout history. This process is largely driven by improvements in productivity, which are in part a result of advancements in technology, especially by small, scrappy start-ups. Also, Israel has specialized in life-enhancing and life-saving technologies like medical devices, water conservation, desalination, and irrigation, not to mention the information technology that is making the world smaller. The great thing about innovation is that, unlike physical resources, ideas can be shared and duplicated by all without taking from anyone else.

LOPEZ: Is there something particularly Jewish about Israel’s success?

DAN SENOR: Many people conjecture that there is something specifically Jewish at work. The notion that Jews are “smart” has become deeply embedded in the Western psyche. We saw this ourselves; when we told people we were writing a book about why Israel is so innovative, many reacted by saying, “It’s simple — Jews are smart, so it’s no surprise that Israel is innovative.” But pinning Israel’s success on a stereotype obscures more than it reveals.