TORONTO — Israel’s economy once rested on the export of agricultural produce, textiles and polished diamonds.
Not so today.
In the six decades since its birth as a sovereign state, Israel has morphed into “a high-tech powerhouse,” write Dan Senor and Saul Singer in their new book, Start-up Nation: The Story of Israel’s Economic Miracle (McClelland & Stewart).
Israel’s transformation is such that the authors describe the Jewish state as “the country with the highest concentration of engineers and research and development spending in the world.”
Consider the following statistics.
Per capita venture capital investments in Israel in 2008 were 2.5 times greater than in the United States, more than 30 times greater than in Europe, 80 times greater than in China, and 350 times greater than in India.
In addition, Israel, after the United States, has more companies listed on the NASDAQ than any other nation, including China, India, South Korea and Singapore.
Terrorism, wars and economic recessions have not slowed Israel’s march to high-tech stardom.
As they put it, “During the six years following 2000, Israel was hit not just by the bursting of the global tech bubble but by the most intense period of terrorist attacks in its history and by the Second Lebanon War. Yet Israel’s share of the global venture capital market did not drop – it doubled, from 15 per cent to 31 per cent.
The factors that account for Israel’s ascent are clear.
The Arab boycott forced Israel to be inventive and innovative, thereby creating an “entrepreneurial culture.”
Israel’s isolation within the Middle East prompted Israelis to embrace the computer, software and telecommunications because, in these industries, borders, distances and shipping costs were virtually irrelevant.
“This, in turn, positioned Israel perfectly for the global turn toward knowledge-and innovation-based economies, a trend that continues today,” observe Senor and Singer.
France’s arms embargo against Israel in the wake of the Six Day War forced Israel’s defence industry to produce military equipment such as tanks (the Merkava) and fighter aircraft (the Nesher and the Kfir, improved versions of the Mirage). These projects resulted in the production of avionic systems, among other technological breakthroughs, that helped jump-start the high-tech boom.
After the 1973 Yom Kippur War, the Israeli armed forces established a special unit for the top two per cent of its new recruits. Its purpose was to maintain Israel’s scientific and qualitative superiority over its enemies.
Once admitted into this elite program, cadets took university-level courses in mathematics and physics and thereby filled the technological needs of the Israel Defence Forces.
The graduates of these courses became some of Israel’s top-flight academics and high-tech entrepreneurs.
Senor and Singer elaborate: “It is no coincidence that the military – particularly the elite units in the air force, infantry, intelligence and information technology arenas – have served as incubators for thousands of Israeli high-tech start-ups.”
The mass migration of Jews from the Soviet Union to Israel had an impact as well. As they say, “Though the Israeli government struggled to find jobs and build housing for the new arrivals, the Russians could not have arrived at a more opportune time. The international tech boom was picking up speed in the mid-1990s, and Israel’s private technology sector became hungry for engineers.”
With the Russian immigrants in mind, Israel established technology incubators – 24 in all – that gave Russian scientists and engineers the resources and financing to research and develop cutting-edge products.
Israeli chutzpah and the anti-hierarchical “culture of doubt” also played a role in advancing Israel’s high-tech sector.
“Employees challenge their bosses, sergeants question their generals, and clerks second-guess government ministers,” Senor and Singer write.
Consequently, little is taken for granted, yielding new ideas and fresh concepts.
So there you have it. Now you know why Israel has become a high-tech power.