Start-Up Nation: The Story of Israel's Economic Miracle
By Dan Senor and Saul Singer | Twelve Books | $26.99; 320 pages
The following is an excerpt from the book
It is by now well known in the tech world that global companies and investors are beating a path to Israel. Indeed, even in 2008 - a year of global economic turmoil - per capita venture investments in Israel 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. And Israel still boasts the highest density of start-ups in the world (a total of 3,850 start-ups, one for every 1,844 Israelis).
It may be less well known that Israel's economy and government policies cultivate a unique entrepreneurialism through its universal military training, innovative approach to immigration, and disproportionate research and development spending (Israel is the world leader in the percentage of the economy that is spent on R&D).
But less well known is how the Arab world's concerted campaign of isolation has actually been an important ingredient for success, too. The economic effects of this isolation can be found in places like La Paz, Bolivia.
THE ELEVATION of La Paz is 11,220 feet and El Lobo is one floor higher. El Lobo is a restaurant, hostel, social club, and the only source of Israeli food in town. It is run by its founders, Dorit Moralli and her husband, Eli, both from Israel.
Almost every Israeli trekker in Bolivia is likely to come through El Lobo, but not just to get food that tastes like it's from home, to speak Hebrew, and to meet other Israelis. They know they will find something else there, something even more valuable: the Book. Though spoken of in the singular, the Book is not one book but an amorphous and evolving collection of journals, dispersed throughout some of the most remote locations in the world. Each journal is a handwritten "Bible" of advice from one traveler to another. And while the Book is no longer exclusively Israeli, its authors and readers tend to be from Israel.
El Lobo's incarnation of the Book was created in 1986, just one month after her restaurant opened. Four Israeli backpackers came in and asked, "Where's the Book?" When she looked mystified, they explained that they meant a book where people could leave recommendations and warnings for other travelers. They went out and bought a blank journal and donated it to the restaurant, complete with the first entry, in Hebrew, about a remote jungle town they thought other Israelis might like.
The Book predated the Internet - it actually started in Israel in the 1970s - but even in today's world of blogs, chat rooms, and instant messaging, this primitive, paper-and-pen-based institution is still going strong. El Lobo has become a regional Book hub, with six volumes: a successor to the original Book started in 1989, along with separate Books for Brazil, Chile, Argentina, Peru, and the northern part of South America. There are other Books stationed throughout Asia. While the original was written only in Hebrew, today's Books are written in a wide array of languages.
"The polyglot entries were random, frustrating, and beautiful, a carnival of ideas, pleas, boasts, and obsolete phone numbers," Outside Magazine reported in an article in 2005. But how is it that travelers from a country as small as Israel have become so dominant in the trekking scene in so many parts of the world?
A well-known joke about Israeli travelers applies equally well in Nepal, Thailand, India, Vietnam, Peru, Bolivia, or Ecuador. A hotelkeeper sees a guest present an Israeli passport and asks, "By the way, how many are you?" When the young Israeli answers, "Seven million," the hotelkeeper presses, "And how many are still back in Israel?" It is hardly surprising that people in many countries think that Israel must be about as big and populous as China, judging from the number of Israelis that come through. "More than any other nationality," says Outside, "[Israelis] have absorbed the ethic of global tramping with ferocity: Go far, stay long, see deep." Israeli wanderlust is not only about seeing the world; its sources are deeper. One is simply the need for release after years of confining army service.
But it's more than just the army. After all, these young Israelis probably don't run into many veterans from other armies, as military service alone does not induce their foreign peers to travel. There is another psychological factor at work - a reaction to physical and diplomatic isolation. "There is a sense of a mental prison living here, surrounded by enemies," says Yair Qedar, editor of the Israeli travel magazine Masa Acher. "When the sky opens, you get out." Until recently, Israelis could not travel to a single neighboring country, though Beirut, Damascus, Amman, and Cairo are all less than a day's drive from Israel. Peace treaties with Egypt and Jordan have not changed this much, though many curious Israelis have now visited these countries. In any event, this slight opening has not dampened the urge to break out of the straitjacket that has been a part of Israel's modern history from the beginning - from before the beginning.
Long before there was a State of Israel, there was already isolation. An early economic boycott can be traced back to 1891, when local Arabs asked Palestine's Ottoman rulers to block Jewish immigration and land sales. In 1922, the Fifth Palestine Arab Congress called for the boycott of all Jewish businesses.
The official Arab League boycott of "products of Jewish industry in Palestine" was launched in 1943, five years before Israel's founding. This ban eventually extended to foreign companies from any country that bought from or sold to Israel (the "secondary" boycott), and even to companies that traded with these blacklisted companies (the "tertiary" boycott).
Until the mid-1990s, almost all the major Japanese and Korean car manufacturers - including Honda, Toyota, Mazda, and Mitsubishi - complied with the secondary boycott, and their products could not be found on Israeli roads. A notable exception was Subaru, which for a long time had the Israeli market nearly to itself but was barred from selling in the Arab world.
Israelis instinctively responded to rejectionism with defiance - as if to say, "The more you try to lock me in, the more I will show you I can get out." For the same reason, it was natural for Israelis to embrace the Internet, software, computer, and telecommunications arenas. In these industries, borders, distances, and shipping costs are practically irrelevant. As Israeli venture capitalist Orna Berry, formerly the government's chief scientist, told us, "High-tech telecommunications became a national sport to help us fend against the claustrophobia that is life in a small country surrounded by enemies." Because Israel was forced to export to faraway markets, Israeli entrepreneurs developed an aversion to large, readily identifiable manufactured goods with high shipping costs, and an attraction to small, anonymous components and software. This, in turn, positioned Israel perfectly for the global turn toward knowledge- and innovation-based economies, a trend that continues today.
It is hard to estimate how much the Arab boycott and other international embargoes - like France's early military ban - have cost Israel over the past sixty years, in terms of lost markets and the difficulties imposed on the nation's economic development. Estimates range as high as $100 billion. Yet the opposite is just as difficult to guess: What is the value of the attributes that Israelis have developed as a result of the constant efforts to crush their nation's development?
Today, Israeli companies are firmly integrated into the economies of China, India, and Latin America. Because, as Orna Berry says, telecommunications became an early priority for Israel, every major telephone company in China relies on Israeli telecom equipment and software. And China's third-largest social-networking Web site - servicing 25 million of the country's young Web surfers - is actually an Israeli start-up called Koolanoo, which means "all of us" in Hebrew. In the ultimate demonstration of nimbleness, the Israeli venture capitalists who invested in Koolanoo when it was a Jewish social-networking site have utterly transformed its identity, moving all of its management to China, where young Israeli and Chinese executives work side by side.
Gil Kerbs, an alumnus of the elite IDF intelligence unit known as 8200, also spends a lot of time in China. When he left the IDF, he picked up and moved to Beijing to study Chinese intensively, working one-on-one with a local instructor - for five hours each day for a full year - while also holding a job at a Chinese company. Today he is a venture capitalist in Israel, specializing in the Chinese market. One of his Israeli companies is providing voice-biometric technology to China's largest retail bank. He told us that Israelis actually have an easier time doing business in China than in Europe. "For one, we were in China before the 'tourists' arrived," he says, referring to those who have only in recent years identified China as an emerging market. "Second, in China there is no legacy of hostility to Jews. So it's actually a more welcoming environment for us."
Israelis are far ahead of their global competitors in penetrating such markets, in part because they had to leapfrog the Middle East and search for new opportunities. The connection between the young Israeli backpackers dispersed around the globe and Israeli technology entrepreneurs' penetration of foreign markets is clear. By the time they are out of their twenties, not only are most Israelis tested in discovering exotic opportunities abroad, but they aren't afraid to enter unfamiliar environments and engage with cultures very different from their own. Indeed, military historian Edward Luttwak estimates that many post-army Israelis have visited over a dozen countries by age thirty-five. Israelis thrive in new economies and uncharted territory in part because they have been out in the world, often in pursuit of the Book.
Dan Senor, formerly a Baghdad-based foreign policy adviser to the US government, is adjunct senior fellow at the Council on Foreign Relations, and also a professional investor. Saul Singer is a columnist and former editorial page editor at The Jerusalem Post. Their Web site is startupnationbook.com.Â©Saul Singer and Dan Senor