Israeli economic growth and innovation

Where Tech Keeps Booming
In Israel, a clustering of talent, research universities and venture capital..ArticleComments (5)more in Books ».EmailPrinter
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. Text .By JAMES K. GLASSMAN
'There are more new innovative ideas . . . coming out of Israel than there are out in [Silicon] Valley right now. And it doesn't slow during economic downturns." The authors of "Start-Up Nation," Dan Senor and Saul Singer, are quoting an executive at British Telecom, but they could just as easily be quoting an executive at Intel, which last year opened a $3.5 billion factory in Kiryat Gat, an hour south of Tel Aviv, to make sophisticated 45-nanometer chips; or Warren Buffett, who in 2006 paid $4 billion for four-fifths of an Israeli firm that makes high-tech cutting tools for cars and planes; or John Chambers, Cisco's chief executive, who has bought nine Israeli start-ups; or Steve Ballmer, who calls Microsoft "as much an Israeli company as an American company" because of the importance of its Israeli technologists. "Google, Cisco, Microsoft, Intel, eBay . . . ," says one of eBay's executives. "The best-kept secret is that we all live and die by the work of our Israeli teams."

Israel is the world's techno-nation. Civilian research-and-development expenditures run 4.5% of the gross domestic product—half-again the level of the U.S., Germany or South Korea—and venture-capital investment per capita is 2½ times that of the U.S. and six times that of the United Kingdom. Even in absolute terms, Israel has only the U.S.—with more than 40 times the population—as a challenger.

As Messrs. Senor and Singer write: "Israel—a country of just 7.1 million people—attracted close to $2 billion in venture capital [in 2008], as much as flowed to the U.K.'s 61 million citizens or the 145 million people living in Germany and France combined." At the start of 2009, some 63 Israeli companies were listed on the Nasdaq, more than those of any other foreign country. Among the Israeli firms: Teva Pharmaceuticals, the world's largest generic drug maker, with a market cap of $48 billion; and Check Point Software Technologies, with a market cap of $7 billion.

Such economic dynamism has occurred in the face of war, internal strife and rising animosity from other nations. During the six years following the bursting of the tech bubble in 2000, Israel suffered one of its worst periods of terrorist attacks and fought a second Lebanese war; and yet, as the authors note, its "share of the global venture capital market did not drop—it doubled, from 15 percent to 31 percent."

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.Start-Up Nation
By Dan Senor and Saul Singer
Twelve, 304 pages, $26.99
.One important question that "Start-Up Nation" raises is: Why Israel and not elsewhere? The authors—Mr. Senor, a foreign-policy official in the George W. Bush administration who now advises an investment fund, and Mr. Singer, a columnist for the Jerusalem Post—dispose, a bit too blithely, the argument from ethnic or religious exceptionalism, dismissing "unitary Jewishness" or even individual talent as major reasons for Israel's high-tech success. (George Gilder, in a recent book treating some of the same matters, "The Israel Test," disagrees: "Israel today concentrates the genius of the Jews.")

Instead, Messrs. Senor and Singer point to a "classic cluster of the type Harvard professor Michael Porter has championed [and] Silicon Valley embodies": the tight proximity of research universities, large firms and start-ups, a talent pool drawn from around the world, and an ecosystem of venture capital and military and other government R&D funding. In addition, they contend, Israel has a unique entrepreneurial culture that combines individualism, egalitarianism (a penchant for organizational flatness) and nurturing.

Where does this culture come from? Mainly, the Israeli military. "You have minimal guidance from the top," Messrs. Senor and Singer write, "and are expected to improvise, even if this means breaking some rules. If you're a junior officer, you call your higher-ups by their first names, and if you see them doing something wrong, you say so." High-school stand-outs are recruited into elite military units and trained intensively, with an emphasis on technology. When they're done, everything required to launch a start-up "will be a phone call away. . . . Almost everyone can find some connection to whomever he or she needs to contact to get started." Israel is a country, it seems, where everyone knows everyone.

It is also a country with mandatory military service before college. For nations that want to emulate Israel's start-up success, Messrs. Senor and Singer advocate similar mandatory service, military or otherwise, to get "something like the leadership, teamwork, and mission-oriented skills and experience Israelis receive." The trick is to combine what's learned in the Israeli Defense Forces (or its non-defense equivalent elsewhere) with an almost abrasive individualism and the kind of self-reliance that occurs in a country that has to go it alone to survive.

The authors give relatively short shrift to economic policy. In a regulatory straitjacket and dominated by a state-run banking system, Israel suffered a "lost decade" from the mid-1970s to the mid-1980s. Messrs. Senor and Singer give appropriate credit to the reforms (like eliminating a ban on performance fees for hedge funds) initiated by Benjamin Netanyahu, now the prime minister, when he ran the finance ministry.

The greatest strength of "Start-Up Nation" is not analysis but anecdote. The authors tell vivid stories of entrepreneurial success, such as that of Shai Agassi, the son of an Iraqi immigrant to Israel, with his electric-automobile technology, now in the process of creating "Car 2.0"; or Gavirel Iddan, who got his start as a rocket scientist, with his pill cameras that explore the inside of the human body, founding Given Imaging in 2001, "the first company to go public on Wall Street after the 9/11 attacks." In the end, it is not easy to discover why Israel, a tiny nation of immigrants torn by war, has managed to become the first technology nation. It may be enough, as this fine book does, to shine a spotlight on its success.

Mr. Glassman is executive director of the George W. Bush Institute, a think tank that is part of the Bush Center in Dallas, which will include a library and museum.