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.
For starters, the idea of a unitary Jewishness — whether genetic or cultural — would seem to have little applicability to a nation that, though small, is among the most heterogeneous in the world. Israel’s tiny population is made up of some 70 different nationalities. A Jewish refugee from Iraq and one from Poland or Ethiopia did not share a language, education, culture, or history — at least not for the two previous millennia. As Irish economist David McWilliams explains, “Israel is quite the opposite of a uni-dimensional, Jewish country. . . . It is a monotheistic melting pot of a Diaspora that brought back with it the culture, language, and customs of the four corners of the earth.”
While a common prayer book and a shared legacy of persecution count for something, it was far from clear that this disparate group could form a functioning country at all, let alone one that would excel at — of all things — teamwork and innovation.
Indeed, Israel’s secret seems to lie in something more than just the talent of individuals. There are lots of places with talented people, certainly with many times the number of engineers that Israel has to offer. Singaporean students, for example, lead the world in science and mathematics test scores. Multinationals have set up shop in places like India and Ireland, too. “But we don’t set up our mission-critical work in those countries,” an American executive from eBay told us. “Google, Cisco, Microsoft, Intel, eBay . . . the list goes on. The best-kept secret is that we all live and die by the work of our Israeli teams. It’s much more than just outsourcing call centers to India or setting up IT services in Ireland. What we do in Israel is unlike what we do anywhere else in the world.”
LOPEZ: What’s the Buffett test?
DAN SENOR: Without spoiling the surprise, let’s just say that Warren Buffett — the apostle of risk aversion — bought his first company overseas in 2006 while Hezbollah’s katusha rockets were landing near the company’s factories. This was his $4 billion acquisition of the manufacturing company Iscar, and the deal was being closed in the midst of the Lebanon War. Buffett didn’t blink. He went through with the deal. Even up against such geopolitical and security volatility, he bet on the Israelis, and in the book, we describe the test he used to justify that bet. It’s key to understanding why so many investors and multinational companies (Cisco has bought nine Israeli companies and is looking to buy more) are willing to take the risk to do business in Israel.
LOPEZ: Can we have an economic miracle too?
DAN SENOR: Yes! America has untapped “Israeli” potential in the tens of thousands of returning veterans whose leadership experience is not appreciated by the American corporate world.
U.S. vets coming out of the Iraq and Afghanistan wars are better prepared than ever for the business world, whether building start-ups or helping lead larger companies through the current turbulent period. Yet the capacity of U.S. corporate recruiters and executives to make sense of combat experience and its value in the business world is limited. As Israeli entrepreneur Jon Medved explained, most American businesspeople simply do not know how to read a military résumé.
U.S. military career adviser Al Chase told us that a number of the vets he’s worked with have walked a business interviewer through all their leadership experiences from the battlefield, including case studies in high-stakes decisionmaking and management of large numbers of people and equipment in a war zone, and at the end of it the interviewer has said something along the lines of, “That’s very interesting, but have you ever had a real job?”
In Israel, it is the opposite. 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. Our book explores ways in which the U.S. might close the cultural gap between the business world and the military communities in the U.S.
LOPEZ: Can economic miracles lead to peace?
DAN SENOR: Israel’s economic success has been a key component in convincing the Arab world that its existence is permanent in the region, which is the threshold incentive for the Arab world to end its attempts to destroy Israel. The moment the Arab world is ready for peace, the opportunities for economic cooperation are great, and Israel could play a pivotal role in helping regional economies advance.
LOPEZ: If Israel is so smart, why can’t it seem to fully outsmart its enemies?
DAN SENOR: Well, on the one hand, you have to be pretty deft and tenacious to be surrounded by enemies who’ve been at war with you since the dawn of your existence and still function like the Israelis do each day. On the other hand, it is remarkable that the Arab world has been attacking Israel incessantly yet has managed to paint Israel as the aggressor.
LOPEZ: Could Iran easily end all this success?
DAN SENOR: No, but if Iran goes nuclear, the possibilities for regional peace shrink to nil, and this is a great opportunity lost for Israel and the Arabs alike.
LOPEZ: What is the biggest threat facing Israel?
DAN SENOR: The threat of radical Islamists backed by an Iranian nuclear umbrella, but this is a threat that would cast a pall over global security and prosperity, not just Israel.
LOPEZ: What makes you two economists all of a sudden, by the way?
DAN SENOR: Aha, you have discovered that this is not a book about economics, really, but culture, history, and chutzpah. We came at this story with the tools of policy analysis, investment experience, and journalism, and tried to tell it for non-economists like ourselves.
LOPEZ: It’s hard not to notice the prominent “A Council on Foreign Relations Book.” When did Israel buy the Trilateral Commission?
DAN SENOR: You’ll have to read the book to find out; but we’re not sure that even we will be able to validate that conspiracy theory.
– Kathryn Jean Lopez is editor-at-large of National Review Online.