Israel – The Economic Miracle

In many respects Israel’s short but dramatic history has created a combination of economic, social, demographic and political circumstances that can hardly be compared with any other country

When describing the economy of Israel, journalists and policymakers in several countries frequently quote a book from 2009 by Dan Senor and Saul Singer called “Start-up Nation: The Story of Israel’s Economic Miracle”. It is recommended as The guide for promoting entrepreneurship and the book that examines how Israel, at that time of book publishing, a 60-year-old nation with a population of 7.1 million (Israel had 9.1 million inhabitants in 2019 and the State of Israel celebrated 70 years of existence in 2018), was able to reach such economic growth that “at the start of 2009, some 63 Israeli companies were listed on the NASDAQ, more than those of any other foreign country. How is it that Israel—a country surrounded by enemies, in a constant state of war since its founding, with no natural resources—produces more start-up companies than large, peaceful and stable nations like Japan, China, India, Korea, Canada, and the United Kingdom? The Economist notes that Israel now has more high-tech start-ups and a larger venture capital industry per capita than any other country in the world.

Two major factors for Israel’s economic growth

The authors of the Start-up Nation explained in 2009 that a major factor for Israel’s economic growth can be found in the culture of the Israel Defense Forces, in which service is mandatory for most young Israelis. The authors believe that IDF service provides potential entrepreneurs with the opportunities to develop a wide array of skills and contacts. They also believe that IDF service provides experience exerting responsibility in a relatively un-hierarchical environment where creativity and intelligence are highly valued. The second important role in Israel’s economic growth, according to Dan Senor and Saul Singer is played by the immigrants: “Immigrants are not averse to start from scratch. They are risk-takers. A nation of immigrants is a nation of entrepreneurs. 9 out of 10 Jewish Israelis today are immigrants or descendants of immigrants the first or second generation. “

The knowledge-based economy

The economy of Israel is a highly advanced free-market, primarily knowledge-based economy. Israel is constantly ranked as “Very Highly Developed” allowing the country to enjoy a higher standard of living than many Western countries. The prosperity of Israel’s advanced economy allows the country to have a sophisticated welfare state, a modern infrastructure and a high-technology sector competitively compared with Silicon Valley.

The country’s major economic sectors are high-technology and industrial manufacturing; the Israeli diamond industry is one of the best in the world for diamond cutting and polishing, amounting to 23.2% of all exports. Relatively poor in natural resources, Israel depends on imports of petroleum, raw materials, wheat, motor vehicles, uncut diamonds and production inputs, though the country’s nearly total reliance on energy imports may change in the future with recent discoveries of natural gas reserves off its coast on the one hand and the leading role of the Israeli solar energy industry on the other.

From an energy-dependent country into an energy supplier

In 2019 the Greek energy producer Energean has discovered a further significant natural gas reserve off Israel’s coast. According to those estimates, discovery in the Karish North exploration field contains between 28 to 42 billion cubic meters (bcm) of natural gas. Until large discoveries of natural gas were made off Israel’s coastline in recent years, few perceived the historically natural resource-poor Israel to be a significant source of energy. This perception started to change with the discovery of the Noa gas field off the shores of Ashkelon in 1999. The discovery of more major natural gas fields in Israel since 2009, including Tamar and Leviathan, has transformed the Jewish state from an energy-dependent country into an energy supplier, both domestically and abroad. The use of solar energy began in Israel in the 1950s. By 1967 around 5% of water of households was solar heated and 50,000 solar heaters had been sold. With the 1970s oil crisis, Harry Zvi Tabor developed the prototype of the solar water heater now used in over 90% of Israeli homes. There are over 1.3 million solar water heaters installed because of mandatory solar water heating regulations. Solar technology in Israel has advanced to the point where it is almost cost-competitive with fossil fuels. The high solar potential of the Negev Desert has encouraged an internationally renowned solar research and development industry. Israel’s objective is to produce 10% of the country’s energy from renewable sources by 2020.

“Innovation Nation”

In the past, Israel was referred to as the “Land of Milk and Honey,” but in 21st century, it is referred to as “Innovation Nation”.

Global rankings of the top innovation ecosystems in the world consistently find Israel to be one of the world’s top locations for entrepreneurs and venture capitalists.

Indeed, Israel’s self-proclaimed “Startup Nation” title often comes as a surprise due to the country’s small size, relatively young economy and culturally diverse population. Yet anyone who knows a thing or two about Israel knows that the country itself is a kind of “startup” endeavor that takes risks, constantly seeks improvement and knows that innovation and creativity will pave the way forward. Israeli innovation has come a long way since its first “entrepreneurs” met on the Kibbutz. From impressive progress in computing technology, to efficient agritech solutions and on to life-saving medical feats, Israel’s list of contributions to human innovation is protracted when considering with its small size. Its immigrant population, go-getter “chutzpah” * attitude, and wealth of opportunities to acquire important analytical and technological skills are factors that have helped foster an impressive ecosystem of innovation.

*Chutzpah derives from the Hebrew word ḥutspâ (חֻצְפָּה), meaning “insolence”, “cheek” or “audacity”. The word is sometimes interpreted—particularly in business parlance—as meaning the amount of courage, mettle or ardour that an individual has

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