The Jerusalem Post,

Start-Up Nation: The Story of Israel’s Economic Miracle.

To our considerable sorrow here atour super-smart, relentlessly questioning, insightful editorial writer, Saul Singer, left the paper three years ago to write a book. To the great and still evolving benefit of the State of Israel, that book was

Along with his New York-based co-author Dan Senor, Jerusalemite Singer set out to answer the question of how our tiny country, all but bereft of natural resources and in the midst of a constant struggle for physical survival, has nonetheless managed to outstrip every other nation on Earth in terms of hi-tech innovation.

But as their book makes plain, and as Singer elaborated in an interview this week, replicating the Israeli model is not so simple. There are, we hardly need reminding, unique characteristics to this country. And aspects of its geo-strategic reality, of its ability to absorb immigrants, of its need to place immense responsibility on young shoulders in the army, are central to its capacity to thrive so strikingly in the field of innovation.

That capacity for innovation, says Singer, has gradually transformed the Israeli economy over the past three decades, but it has the potential to achieve a great deal more. It is already enabling us to genuinely serve as a “light unto the nations,” Singer argues – saving lives, bettering the world. Tikkun olam in practice.

Among the examples Singer cites here are Shai Agassi’s trailblazing Better Place electric car venture, and the dramatic new approach to teaching being pioneered by Time To Know, revolutionizing the classroom. (It has been widely reported, to give one more telling instance, that Congresswoman Gabrielle Giffords’s life was saved after she was shot in Arizona in January because the emergency medical team applied a revolutionary elasticized bandage, developed in Israel, that creates pressure to quickly staunch head wounds.)

We now need to more deeply internalize that potential ourselves, Singer says, maintain our cutting edge, and begin building deeper and wider relationships worldwide to further our positive impact.

cnxps.cmd.push(function () { cnxps({ playerId: '36af7c51-0caf-4741-9824-2c941fc6c17b' }).render('4c4d856e0e6f4e3d808bbc1715e132f6'); });

Post

When he stepped down from thethree years ago, I should add, most of us knew Saul as quiet and understated, almost selfeffacing – a colleague who articulated himself most effectively in his writing. The Saul of 2011 is an extrovert with a cause, talking up Israeli innovation and its still untapped potential with almost evangelical passion.

In both incarnations, I should stress, Saul has always been kind, gracious and unimpeachably likeable. But a small, delightful subplot is that writing his book on the hi-tech transformation of Israel, and internalizing its impact, has quite evidently also transformed Saul Singer. Let’s start with some Start-Up Nation basics.

When was the book published?

In November 2009.

And where had it come from?

Business

It stemmed from an idea Dan had when he was a student at HarvardSchool in 2001. He led a group of students to Israel – the first such group. Mostly non-Americans.

He wanted to give them a book on Israel’s entrepreneurial innovation. There wasn’t one.

So, years later, we decided to write it.

It would have been hard for a native Israeli to write a book like this alone. Even I, an oleh of over a decade-and-a-half’s standing, was too close to some of it. It needed a New Yorker to recognize what was being achieved here. I was on the inside, a journalist at that. I was used to complaining about the economy. He, as an outsider, was marvelling at the start-up scene.

And just how marvelous is it really?

Truly amazing. Israel has the largest number of start-ups per year outside the US of any country. Not per capita. The largest number. Period. We have about 500 a year, and all of Europe has 600-700. Our 7.5 million people compared to that whole continent’s 700 million people.

startups

There is no sentiment involved in the allocation of venture capital to fund. It doesn’t care where it goes. Venture capital is looking for “the next big thing” – the next Microsoft or Google. And Israel gets two-and-a-half times as much venture capital per capita as the United States and 30 times as much as Europe.

The proportion of our GDP that goes on research and development is 4.8 percent. The OECD average is 2.5%, and the US is about the same. So Israel is far ahead in civilian R&D.

How do you explain the phenomenon. What’s the Israeli start-up secret?

ideas

That takes us into the nature of innovation. There’s a difference betweenand startups. Generally, if you ask, “Why is Israel successful?” the answer you get is that “there are lots of smart people here.”

But that’s not really the answer.

Israel is No. 1 worldwide for patents for medical devices per capita. But we’re not No. 1 in patents per capita overall. There are five or six countries ahead of us, including Korea, Japan, the US, maybe Sweden. And those countries, with the exception of the US, don’t have so many start-ups. So it doesn’t just come down to the number of ideas and the number of smart people.

So what are the real factors?

There are two other factors: drive and the willingness to take risk. Israel has more of those qualities than other countries.

And why’s that?

We talk about seven or eight reasons in the book. Two of the most important relate to the military and to immigration.

There’s a misconception that the military plays a central role in Israeli start-ups through various IDF hi-tech units and through military R&D. In fact, the main military influence is cultural. So many Israelis go through the IDF, they learn leadership skills, they learn about teamwork, improvisation, sacrifice for a larger goal – these are things you don’t learn in school or in business. It’s a kind of third stage in life.

When people abroad characterize what’s unique about Israeli innovation, you hear the same two terms over and over: maturity and sense of purpose. And both of those come from the military experience. Sense of purpose comes, too, from the fact that Israel itself is a start-up. We all grew up on the story of the country – the determination and risk involved in building it. Every generation is maintaining that determination and readiness to take risk to further build the country in its own way.

For this start-up generation here, it’s not just about making money and finding an exit. It’s motivated by a desire to contribute to the country – 21st-century Zionism – and to the world. This is the new form of pioneering. Our grandparents drained the swamps. This – innovation – is what we do.

Start-ups are extremely hard to do. When you have a great idea, two things tend to happen: One, everyone says you’re crazy. Two, everyone reminds you that most start-ups fail.

And that’s true. So you need a lot of determination and you need to be prepared to take risks. Well, lots of Israelis meet both of those challenges.

And where does immigration fit in?

Most everyone here is either an immigrant, the child of immigrants or the grandchild of immigrants. That, by its very nature, took determination; it reflects a willingness to take risk.

There’s just been a study in the US which showed that half the companies in Silicon Valley were started by immigrants.

This is the most pro-immigrant country on Earth. Here we have politicians campaigning for more immigrants. We have an Absorption Ministry! Sure, we complain about how it works. But other countries are coming here to learn from us about how we absorb immigrants.

We’ve turned a potential problem into an asset.

Were there key players who set this remarkable start-up phenomenon into motion?

Economists talk of “clusters” – environments where one industry develops and snowballs. In Silicon Valley, the “cluster” comprised one key company, Hewlett Packard, a great university, Stanford, and nice weather. That’s what it took. Israel had the classic “cluster” elements. Intel came here. This was its first R&D presence outside the United States. Dov Frohman [the Holocaust-orphaned, Israel-raised, former Intel vice president who pioneered Israeli hi-tech research] had planned to come in 1973 but had to postpone that because of the Yom Kippur War. Intel opened here in 1975, which was incredibly early in terms of hi-tech. Remember, even into the 1980s, you had to apply to some government ministry to get a phone line. This was not the easiest place to get going, but Frohman had the determination and the drive. There were also great pioneering Israeli companies, like Uzia Galil’s Elron, which was founded in 1962. We had great universities. And we, too, had nice weather. That was our cluster.

All that was boosted by the Yozma program of the 1990s, which created a venture capital sector out of nothing. It established a threeway partnership: government funding was provided, local venture capital funds were created and American venture capital funds came in. The government took on some of the risk from the private sector. And that partnership funded all the great 1990s start-ups – ICQ and Checkpoint and Comverse and Amdocs and many others.

Yozma was the most successful government program ever. It came at the right time. It worked. It fulfilled its function. It disappeared. The private sector bought out the government.

So you had a kind of positive “perfect storm” in the 1990s: There was Yozma. The Oslo process from 1993 eased Israel’s economic isolation. People forget how strong the Arab boycott was before that. There were no Japanese cars; lots of other partnerships and presences people now take for granted didn’t exist. Then there was the overall growth in the global economy. The US was enjoying its hi-tech boom – the Internet bubble.

And of course there was the huge influx of Russian olim. We were the recipients, the beneficiaries, of much of the top talent of a nation of 200 million people – we, in our country of then six million people. It was an incredible injection of human capital. And we used it so well. There were, for example, large numbers of civil and mechanical engineers, and what we needed were electrical engineers. Well, for $2,000 per person, we trained engineers who became worth $200,000. It was a 100-fold return on investment.

Now, in 2000, all of those favorable conditions fell apart. There were barely any Russian immigrants. Oslo was over. The second intifada began. The Internet bubble burst and the global economy went south. So the Israeli start-up phenomenon should have shriveled and collapsed. The rug had been pulled out from under it.

And it didn’t because?

Israel got more global venture capital in 2005 than it had in 2000. We actually moved ahead during those years.

How’s that?

Israeli start-ups have transformed adversity of all kinds into a renewable source of creative energy.

Look at all the obstacles start-ups here face. They have no sufficiently large local market. They have no ready access to the regional market, because of hostility. Israel is under constant attack, and constant boycott pressure. All these adversities have been turned into assets.

And that creative energy has not only been focused on hi-tech innovation. It has also been channeled into social entrepreneurship. Into the arts. Start-ups are just a part of it.

So the global economic downturn was just one more factor to grapple with. Our economy has suffered only a single quarter of negative growth since the 2008 economic crisis struck, and not a single full year of negative growth. Our stock market was the first to recover. The Bank of Israel was the first to raise interest rates – which showed that there was concern here about too much recovery!

Why did all that happen? For one thing, a start-up-centric economy is less vulnerable to a global downturn. It doesn’t have lots of customers, so there’s less significance to a drop in customers. For another, a downturn period is a good time to start start-ups. People are out of work. They are looking for something new. You don’t need too much money to get a start-up going.

Also, maybe you’re more ready to take risks, because there’s less to lose. How central are Israel’s start-ups to our overall economy?

There’s a big debate over the relative importance of start-ups and big companies. As we quote Shimon Peres saying in the book, Israelis and Jews, we have a tendency to be dissatisfied. That was certainly true in the hi-tech sector. We had Nokia envy. People were asking, “Where’s our Nokia? If Finland can do it, why can’t we?” People don’t say that as much anymore, now that Nokia is not in such great shape. But still there are some who say we must build big companies.

To which I say, yes, but that tends to downplay the importance of the start-ups. We are and must continue to be a start-up-centric economy. That’s our comparative advantage. We envy other countries’ big companies? Well, they envy our start-ups. They’re coming here to learn. Others are looking to us for innovation.

The world needs innovation more than ever. The pace of change in the world is only increasing. Twenty years ago, who knew what the world would look like? Mark Zuckerberg was, what, six? [Spot on, Saul. He turned seven in May 1991.] There was no Google. No Facebook. Barely an Internet.

Twenty years from now, even more change will have occurred. In a world like this, the premium on innovation only goes up. It’s a world of opportunities for start-ups. If our start-ups grow into big companies, fine. But our challenge for the future is to produce a growing crop of cutting-edge start-ups.

I probably should have asked you this earlier: How do you define a start-up?

A new business built around something innovative. Not necessarily technology. Israel is increasingly offering three types of innovation. Right now, it is mostly in technology. But already there is more “business model innovation” and “globalization.”

Shai Agassi’s Better Place is an example of that second kind of start-up, business model innovation. Its essence is that Agassi recognized that electric cars were already cheaper than gas cars if fuel costs are included. Build cars and infrastructure to support swappable batteries, and suddenly electric cars are cheaper, more convenient, and have the same infinite range as gas cars. And this is happening now. I’m going to be able to buy a car with no tailpipe this year and drive it anywhere in the country. This wasn’t revolutionary technology, although there was plenty of innovation. The key innovation was in the business model.

The same applies to Strauss, which is now selling coffee in Brazil. An Israeli company selling coffee to Brazil! They found a better way to sell coffee. A more innovative business model.

As for globalization, a recent example is the Chinese company that just bought Makhteshim, the Israeli fertilizer company. They didn’t buy it for its technology. They bought it because it is working in 120 countries. That meant instant globalization for the Chinese.

We’re good at globalization. Why? Because we’re geniuses? No, because of the particular challenges we face here. A French company sells first to the domestic French market, then to Europe and then to the world. Israeli companies have to think globally from day one.

Coming back to my question: How central are start-ups to the Israeli economy

If you look at a graph of Israeli exports down through the decades, you see “oranges” trundling along at the bottom. And then hitech kicks in and sends the graph soaring. Half of our exports come from hi-tech. And we’re an export-driven economy.

And yet things are far from perfect here economically…

For instance?

Absolutely not. When one part of the economy races forward, and the rest gets left behind, as has happened here, you get wide social gaps. But the solution is not to complain about hi-tech. Without hi-tech we’d be left with the oranges. The solution is to bring up the rest of the economy. Take advantage of the hi-tech sector. Learn from it. And specifically, introduce the key factors that have boosted hi-tech to the rest of the economy.Hi-tech has thrived with low taxes, low regulation and high competition. The rest of the economy is the opposite – high taxes, high regulation and low competition, so it’s no surprise that the rest of the economy isn’t doing so well.

Now there are real problems, notably the low participation in the labor force of entire demographic sectors – ultra-Orthodox men and Arab women. And then there are the familiar problems with our education system.

And yet take somewhere like Tel Aviv University. For all the higher education woes, Tel Aviv University is ranked 11th in the world in citations per faculty member – how often people are cited by their fellow academics. That’s a figure you can’t play with. TAU is behind Harvard and MIT but ahead of Oxford, Cambridge and Yale. So we have both a world-class education system and a failing one.

Let’s go back to the book for a moment. How has it fared in terms of sales and impact?

The New York Times

The Wall Street Journal

We have to deal with falling test scores in our schools. We have to deal with the brain drain from our universities. But there are also some leading academics here who argue, with some sense I believe, that we should be doing much more to encourage foreign academics to come here. Not just Jews and returning Israelis. More and more students are studying abroad. We should take advantage of this.It reached No. 5 on the business bestseller lists of bothand. It has been the No. 1 English book at Steimatzky’s here ever since it came out. It has been a business bestseller in India and a general bestseller in Singapore. It’s on its fifth printing in Korea since August. The Korean government and Samsung bought hundreds of copies.

It’s either out or coming out in translation in China, Taiwan, Korea, Russia, Portuguese in Brazil, French, German, Hebrew, Bulgaria, the Czech Republic and Turkey.

It’s coming out soon in Arabic. It will be published by the United Arab Emirates’ Institute of Strategic Studies. It’s already circulating among the Arab elites in English. A friend of mine was just at a conference in Morocco. They’d all read it. Palestinian Authority Prime Minister Salam Fayyad knows all about it. Fareed Zakaria on CNN made it a book of the week and said that every Arab businessman and politician should read it.

I’m particularly pleased about the Turkish version. A leading economic institute there helped find a publisher and is doing a launch event. You have “conflict” on one hand, and the book on the other. There is so much interest in the Israeli economy in the Arab and Muslim world.

Has official Israel realized its potential?

How many copies in print in all?



Are you planning a sequel?

Now let’s talk a little about the wider implications of Israel being the Start-up Nation, and especially how we should do more to internalize and utilize the fact.









I also just got my first e-mail from Mongolia. A school there wants to translate it. I told the Israeli Embassy in China. So we may have a Mongolian edition.I’ve spoken at various officially organized conferences, in Brussels, in Berlin. I know that many ambassadors and commercial attaches are using it.In the US edition, about 100,000. And the paperback is coming out this year.Dan and I are talking about another book. It won’t be a sequel. It will be a business book that will be based on Start-Up Nation, but won’t just be about Israel.We need to update our narrative. The Jewish narrative has changed over the years. We need to enter the 3.0 era.1.0 was the era of the Bible. What we Jews were about then was purpose. And our purpose was to transform the pagan world – the world of child sacrifice and extreme immorality. Along with Christianity and Islam, we succeeded to spread a message of one God and of ethics. The pagan world was transformed. Mission accomplished. And we grew as a people. But then we faced the destruction of the Temple and exile.

And today?

Amusing, but not good enough?



Which you don’t?

And that took us into the 2.0 era. 2.0 was the era of survival. In that mode, what we Jews were about was survival, and the dream of a return, and messianism. We were hoping we’d be around to see the future. That 2.0 period lasted 2,000 years.Today, we’ve still got this narrative: They tried to kill us, we won, let’s eat. That’s how we still think of our narrative.That’s a narrative of survival. That’s not a purpose. Unless you call survival a purpose.Of course not. We must update the narrative, to: They tried to kill us, we won, now we’re changing the world!

That takes us to the word “miracle” in the book’s subtitle. When I moved here 16 years ago, we thought that the dream of being a light unto the nations probably had to wait for peace. We were busy surviving. That challenge is still there. But what we learned writing this book is that the light unto the nations dream is already happening. We are saving lives though medicine – through medical innovation. Better Place is showing the whole world how to get off oil. Almost every technology you look at – computers, cellphones, Internet – has a piece of Israel in it. Almost all of the major technology companies are doing some of their research here. We’re having an impact and it can increase dramatically. There’s tremendous potential for it to grow.

And somehow this positive impact has to be integrated into our narrative: what we’ve achieved; what we can do.

We’ve not internalized what we’re achieving here?



Can this also have a positive impact on the ongoing challenge of survival?

Yet that’s not what we talk about when we talk about Israel. It’s not what we show when we bring people to Israel. It’s not integrated into the way we think about our purpose as a people in the world. Not yet.That’s right. This is the 3.0 era. This should impact the way we talk and think and act. It should impact the way the Jewish world talks, thinks and acts about Israel.Yes, definitely. The way we currently deal with the threats and challenges of delegitimization, of boycotts, is defensive. But you can’t win by being defensive. “Winning,” with that strategy, is merely moving from negative territory to zero in the best-case scenario. You’re not advancing positive thinking on Israel in that way.

The real way to fight disinvestment is with investment. The way to fight disengagement and boycott is with engagement.

Take anybody, anywhere in the world. They’re interested in their work, their business, their community. In all of these areas and more, there’s something going on in Israel that can help them. They can enhance their world with a partnership with Israel, and produce something that benefits everyone.

It’s the same in Europe. It’s the same in the US. This is the way to fight isolation – improve the world though cooperation and creative energy. This is not just about business. It’s about people.

I was recently at the Cincinnati Children’s Hospital. I had been invited to the area by the local Cincinnati Jewish Federation. The hospital has a research budget of $130 million. I saw their labs. If they do some of that research together with Israel, it will be more effective. Again, not because we’re geniuses, but because we’re used to small budgets. We do more with less. They’d benefit and so would we.

You mean in encouraging those kinds of partnerships? So what should be done?

The Jewish community has barely begun to mobilize in this direction.Connect at a business level and at the nonprofit level. Businesses and universities. The Diaspora Jewish community is the natural place to lead that kind of effort, but it doesn’t have to just be Jews.

As things stand, the Jewish community is speaking to the shrinking converted. Birthright widened that community. But we have to reach out to people who don’t have any kind of Jewish connection. And what’s meaningful to everyone is to innovate and make a better world.

What about in our hostile region?



And how does that extend to the Arab world?



And it certainly shows another side of Israelis?

How much further can the Israeli start-up sector grow?





China and Mongolia are not interested in Israel because it’s the Jewish state, but because it’s innovative and creative. That’s the Jewish to non-Jewish connection.I met last week with an Israeli woman who was very critical of Israel, very active against some of the bad things we do regarding the Palestinians. But she said it made her feel proud to realize what Israel is doing in the field of innovation. It didn’t make her forget the things she doesn’t like. But it did make her proud.Our capacity to innovate cannot, by itself, have a dramatic impact. But the key component there is the elites – the elites that would engage with us if the situation allowed it. This [start-up phenomenon] can’t create a new situation [in terms of our relations with the Arab world]. But it does constitute a further incentive to bring about change.Yes, and that’s helpful.The potential is enormous. Over 80% of Foreign Direct Investment (FDI) in Israel comes from the US. That makes no sense. Why is the rest of the world less than 20%? Yes, US companies are tech-oriented. But that still doesn’t explain those proportions. Plainly there is potential to build wider relationships with Europe and with Asia. The firms competing with IBM, Microsoft and Intel, why aren’t they here? These US firms have injected themselves into our strength: innovation.We’re not good at everything. We are struggling when it comes to scaling up. The CEO of General Electric, Jeff Immelt, said to companies here on a visit last month: bring us your innovations; we’ll help you scale up. That’s a model for a natural partnership with other parts of the world, too.Now, of course, they, too, can innovate and we, too, can get better at scaling up. But our comparative advantage is in innovation. And that’s a great niche to be in. We certainly shouldn’t complain about being in that niche. In fact, we better make sure we stay in it. Improve in it. That we not take our leadership in it for granted. Others are coming up.

There’s plenty of room at the cutting edge, and we’ll be fine if we stay at the cutting edge. But we can’t afford to fall back. If we don’t stay at the cutting edge, we have nothing to offer. Other countries do.



And you worry that we are getting complacent?

We mustn’t be complacent about our place as a start-up phenomenon. And that means we can’t be complacent about education.This is a watershed moment. We can go one of two ways. If we get complacent and fail to deal with our education problems, we will lose our edge. I hope we’ll fulfill our potential – that we’ll grow the start-up sector at the same time as we build big companies. What we’ve achieved to date is just the beginning.

And the geo-strategic element of this is that the Israeli economy can become a factor that other countries have to take into account in this hi-tech world. They don’t at the moment. Only 1% of Europe’s exports go to Iran, but even that relatively tiny commercial relationship impacts on Europe’s thinking on Iran. Economic factors affect countries’ political thinking.



Just elaborate a little on the specific potential for further expansion of the start-up sector.

Now we certainly can’t compete in terms of getting large numbers of countries on our side in UN votes. But we can compete in terms of economic significance. We can create a situation in which it is not a free ride to moralize at Israel’s expense. Already our economy is greater than the combined economies of our four neighboring states – Egypt, Jordan, Syria and Lebanon.Shai Agassi puts it well. He describes Israel as “a Beta country” – a testing ground for trying out solutions for the global economy. Innovate here, see if it works, then scale up for global application – exactly as Better Place is doing.

I’ll give you another example, another Israeli start-up: Time To Know, which has a system to reinvent the classroom.

The classroom has remained unchanged for hundreds of years. They’re redoing it. A laptop for each kid; maybe an iPad soon. And teachers freed to teach at many levels at once. No need for tests, because there is a realtime feedback from the kids to the teachers, to principals, to parents.

It’s being used in some schools in Tel Aviv already. I just visited one. They say it would be “unthinkable” to go back to the way things were before. The program has been running for a while in Texas too. And now it has started in New York.

It’s not the education panacea. A lot more is needed to fix education. But this is an example of innovation to tackle a world problem.

If we in Israel can solve our education problems, as we must, we can then take those solutions and spread them, and turn a disadvantage into an advantage.

We can do the same in health care. We can do the same when it comes to the management of water.

Sometimes our own start-ups skip Israel. It’s nice when they don’t. It’s good when they test their ideas in Israel.

I see a multitude of ways that the creativity in this country can have a huge impact. As I said, we can find and test and demonstrate solutions to world problems. We can be, we are, a key part of the engine inside large companies.

And maybe we can start to build large companies of our own. Maybe the next Facebook can come from here. If it does, it will come from a start-up.

That’s one more reason I’m so excited that the book has been out for the past two months in Hebrew. I don’t think Israelis are generally appreciative enough of the comparative advantage we have here – of what we have to offer the world.

There is plenty to fix here. But first we have to realize what our strengths are. That’ll enable us to fix things more effectively.

Tell me more.



Most of our focus in this country is on the political. But we have to focus on what we are working towards. This book gets to the essence of our potential, and it’s not just in economics. We can go into anything. Social start-ups. Maybe applying some innovative thinking to government...Well, for a start, clearly governments have to do a better job of interacting with their electorates. You need better feedback mechanisms. Government must be more responsive. There’s certainly scope there for innovation. I don’t know anybody who’s working on that here, but the need is there.But I want to end by restating my central conviction about start-ups and their potential for transforming the Jewish state. Our purpose, the Jewish people’s purpose, is not to survive. The purpose of surviving is to have a positive impact. It so happens that innovation, and solving world problems, is the main means by which we have been having a positive impact so far, and it offers potential for even greater impact in the future.

But beyond that, once we start thinking in terms of the positive impact we can have, and not just in terms of our survival, this has implications across the board, not limited to the Start-Up Nation perspective. It has implications for everything from the macro to the micro, from our foreign policy strategy to the way we conduct ourselves when manning roadblocks.