Israeli economic miracle: From sand to start-up, by wit alone

Text: Žikica Milošević

Israel is one of the few nations in the world that can boast about its ability to create something out of nothing, by sheer wit and ingenuity. This is one characteristic that everyone should study and, presumably and hopefully, copy to the greatest extent possible in their local conditions. It is not strange that Israelis produce salt from the Dead Sea or oranges from the desert, but we are not talking about a resource-based economy; we are talking about a crucial feature of the Israeli economy, which is “something from nothing”.

Israel is frequently called “the Start-up Nation”, due to the huge number of newly created companies emerging out of Israel. And there’s no wonder it is happening here in particular. As there have been countless cases of persecutions and pogroms in Jewish history around the world, the only thing a Jew has been able to count on is his own wit and education, idea or brain, call it what you will. If they burn your house and expel you, what gold can you bring with you other than that contained inside your mind? And, contrary to popular belief, the main Jewish wealth is not the material kind, but the kind in their minds. Being ready to start again from scratch in a new place, that is what characterises Jews more than any other ethnic group in the world. And it is no wonder that their newly established homeland got the glory.

THE STARTUP NATION

The very name “Start-up (or Startup) Nation” comes from a recent book, appropriately entitled “Start-up Nation: The Story of Israel’s Economic Miracle”, which was published in 2009 and tells the story of the economy of Israel in the words of Dan Senor and Saul Singer. It examines how Israel, a 60-year-old nation with a population of just 7.1 million, was able to achieve such economic growth that “at the start of 2009, some 63 Israeli companies were listed on the NASDAQ, more than any other foreign country”, as the authors note.

The Council on Foreign Relations states in its publisher’s blurb for Start-up Nation that the book addresses the question: “How is it that Israel—a country of 7.1 million people, only sixty years old, 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 magazine also wondered about this, noting that “Israel now has more high-tech start-ups and a larger venture capital industry per capita than any other country in the world”.

And there must be some reason for that, right? Apart from the one I mentioned, Senor and Singer discard the idea that it might come from some ethnic or religious background, since that would represent exceptionalism and therefore be unrealistic. They cite two major factors, both of which are largely forgotten or dismissed in the rest of the developed world. Those are mandatory military service and immigration.

DISCIPLINE AND SQUARE ONE

Senor and Singer claim that the major driver behind the Israeli economy is mandatory military service and the widespread culture of respecting and serving in the IDF (Israel Defence Forces). These two or three years of service is not time lost, but rather provides a possibility to develop skills and contacts, and to develop resilience. The authors also argue that “IDF service provides experience exerting responsibility in a relatively un-hierarchical environment, where creativity and intelligence are highly valued”, adding that “IDF soldiers have minimal guidance from the top 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”. This is itself, however, deeply connected with the Jewish religion, since in Judaism you argue with God if there is something you disagree with, while in Christianity God is a bit further away, with Christ and his Disciples on Earth, and in Islam a lot is about destiny and Allah’s will. But Jews can quarrel with any authority, even the divine. The authors add that egalitarianism is crucial, since it enables one to develop the idea that you can advance and do something with. “Neither rank nor age matters much when taxi drivers can command millionaires and 23-year-olds can train their uncles. And Israeli forces regularly vote to oust their unit leaders.” It could easily be true that the lack of resilience in Serbian society, with a shying away from possibilities to express oneself out loud, comes from the absence of mandatory military service in recent years. The Israelis are not spoilt, and can say anything aloud.

The second factor cited by the authors is immigration. All other countries are now closing their borders, with the only exceptions being Canada and Germany, frightened that newcomers will “spoil” something. But these two theoreticians say the opposite. Since nobody is an old-Israeli, nobody is a newcomer. Everyone came from somewhere and started from scratch, so you can too. We quote: “Immigrants are not averse to start from scratch. They are by definition risk-takers. A nation of immigrants is a nation of entrepreneurs. From survivors of the Holocaust to Soviet refuseniks through the Ethiopian Jews, the State of Israel never ceased to be a land of immigration: 9 out of 10 Jewish Israelis today are immigrants or descendants of first or second generation immigrants. This specific demographic, causing the fragmentation of communities that still continues in the country, is nevertheless a great incentive to try their luck and to take risks, because immigrants have nothing to lose.”

Unfortunately, there are some drawbacks, since Israeli start-ups almost never become household names and big players. Israel still lacks its own gigantic corporations, like IBM, Samsung or Nokia, two of which also came from formerly underdeveloped countries in South Korea and Finland. The authors of the book claim that the Israeli start-ups are usually bought at a early stage by giants from abroad, but there is a more serious claim that Israel did not develop the kind of mature management culture needed to run such companies. Anyway, with such companies as Viber, or Gett (Uber rival for car driving) becoming unicorns easily, it is no wonder that Israel will always be a country for business innovations. And in this ever-changing world that is crucial, as the Novi Sad IT cluster has shown in Serbia.

INSPIRATION

Is it worth wondering if we can also do it? Palestinian Prime Minister Salam Fayyad reportedly keeps a copy of Start-up Nation on his desk, as a source of inspiration for the West Bank’s own burgeoning technology industry. Enough said.

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