Apps & oranges: Israel’s economic journey from 1948 until today

The story of Israel’s economic development is an unusual one. Rising from the ashes of a brutal world war and flooded with refugees, the Jewish state had humble economic beginnings.

By NIV ELIS
Screenshot of Waze mobile navigation app 370 (photo credit: Screenshot)
Screenshot of Waze mobile navigation app 370
(photo credit: Screenshot)
From the time the International Monetary Fund started classifying countries as either “advanced economies” or developing, only 13 countries have graduated from the latter to the former. It is no easy task, after all, to build a modern economy. But in 1997, when it made its first such classification change, one of the five countries to get an upgrade was Israel.
The story of Israel’s economic development is an unusual one. Rising from the ashes of a brutal world war and flooded with refugees, the Jewish state had humble economic beginnings. Yet 66 years later, it is heralded as the “Start-up Nation,” known for its hi-tech prowess, scientific discoveries, patents and innovations.
But how did Israel get there? The Jerusalem Post looks at four products representing the eras of Israel’s economic development.
The orange era: Ripe, juicy citrus fruits became synonymous with Israel in the early days of the state, as Jaffa-brand oranges became the gold standard.
In its first two decades, Israel was busy laying the groundwork for a robust economy, building up its capital stock and putting the institutions of the state in place. “From nothing, we created an economy,” said Shauli Katznelson, deputy director- general of economics at the Israel Export and International Cooperation Institute.
In 1950, agriculture accounted for 11 percent of Israel’s economy, and 60% of its exports. Israel was far from economically self-sufficient. It had to import six times the amount of goods it exported. Agriculture filled one of the basic human needs: food.
Aside from the fact that Israel had few other options for what to create early on, an important reason for the focus on agriculture was Zionist ideology. Labor Zionist thinker A.D. Gordon called on Jews to move to Israel and work the land, arguing that manually working the land “binds a people to its soil and to its national culture.”
Israelis proved adept at finding new ways to “make the desert bloom,” developing innovations such as drip irrigation to save water. Israeli methods have made its cows the most efficient milk producers in the world. According to the Foreign Ministry, Israel has, since its founding, increased the area under cultivation by 160%, while irrigated land area has gone up eight-fold.
And while the size of the economy devoted to agriculture today is just a fraction of what it used to be, it has remained an important part of the economy. In absolute terms, agricultural exports increased from $20 million in 1950 to $1.2 billion in 2009.
Today, Jaffa oranges are a nostalgic reminder of Israel’s agricultural past. But far from being Israel’s main export, today’s Jaffa oranges may not even be Israeli. Israel’s Citrus Marketing Board leases the brand name Jaffa to high-quality citrus growers in Spain and South Africa.
A chip on it's shoulder: When Intel first opened an office in Israel in 1974, the idea that it would pour $10.8 billion of investment into the Jewish state over 40 years would have sounded crazy, but that is indeed what happened.
That, Katznelson says, was the same decade that the chief scientist in what is now called the Economy Ministry started laying the groundwork for the hi-tech boom to come. To attract investment, the government promised to bolster and take on significant amounts of risk from venture capital firms. Once in Israel, investors discovered that Israeli innovation was good enough even without the government’s backing.
As globalization got into full swing in the 1990s, Israel’s traditional industry faced greater competition, pushing the economy toward hi-tech instead. Companies like Microsoft, Motorola and IBM opened up research and development centers.
Diamonds in the rough: By 1970, Israeli agriculture had fallen to just 17% of exports, while its traditional industry developed to the point where it comprised over half of its exports. But one industry in particular stuck out: diamonds.
Utilizing its cutting and polishing prowess, Israel made connections with diamond dealers in the Diaspora to become a major trading hub.
As time has passed, a significant portion of the work has migrated to India and several Eastern “tigers” such as Laos and Vietnam, leaving Israel as a connector. Israel’s diamond exchange is the largest in the world, and the 1,400 diamond companies in Israel still have major operations with foreign cutters and polishers. In fact, for every five of the 20,000 people employed in the diamond sector in Israel, there are seven employed by Israeli companies abroad. Even abroad, Israel still provides the expertise, technology, security and connections to facilitate the trade.
Today, Israel turns over about $28 billion in diamonds a year. Though diamonds now account for only 15% of exports, their impact is so significant that the Central Bureau of Statistics is forced to exclude them from export statistics for fear that they will skew their interpretation.
The Waze of the future: By 2013, Israel’s hi-tech accounted for $35.7 billion of its exports.
The nearly billion-dollar sale of Waze to Google in 2013 is perhaps the clearest face of Israeli technological prowess, but Israel’s penchant for innovation has found expression in fields as varied as pharmacology, defense systems and medical devices. Even its agricultural past has fused with its technology, leading to exciting development-oriented companies that focus on selling cutting-edge environmental and agricultural tools abroad.
Successful large companies such as Teva, Israel Chemicals and Intel dominate the export landscape, ensuring that medication, chemicals and electronic devices are a persistent feature of Israeli exports to the world.
As India and China emerge as new, huge markets for Israeli products, the question going into Israel’s 67th year is, as always, “what will Israel come up with next?”