Remaining a ‘Start-up Nation’

Is the “Start-up Nation” losing its touch? If you ask Intel Israel president Mooly Eden, the answer might be yes. During his company’s annual conference in Tel Aviv this week, Eden questioned whether Israel’s successes as a hi-tech powerhouse would continue in coming years.

“Are we investing enough in Israel on a national level so that in the future we will have Israel the Start-up Nation Part Two, or will this be a history book?” he asked.

The backdrop for Eden’s disturbing warning was the recent publication of hi-tech export data for 2012.

While Eden’s Intel Israel managed to double exports from $2.2 billion in 2011 to $4.6b. in 2012, total hi-tech exports for 2012 fell slightly for the first time since 2002, from $21.5b. to $21.25b.

“This should be a flashing red light,” warned Eden.

“We aren’t the only start-up nation in the world. There is a start-up nation in India and a start-up nation in China and a start-up nation in Brazil.”

But aren’t Eden’s warnings an exaggeration? Falling hi-tech exports appear to be more a result of stagnated economies in America and Europe than a sign of more fundamental problems with the innovative abilities within Israeli society.

In fact, there are many signs that Israel continues to maintain its unique standing as a country without natural resources that faces constant security challenges, but nevertheless manages to compete in the world economy thanks to its highly innovative population.

For instance, according to a 2011 study by Uri Kirsch of the Israel Institute of Technology-Technion, the country’s academic ranking in the world as measured by the number of times research published by Israelis was cited in academic literature is 13th, quite high relative to the size of the population. In fields such as computer science, molecular biology and genetics and chemistry, Israel’s ranking has barely changed in recent decades.

More patents have been filed in Israel compared to in the US, the European Union and Japan, after adjusting for country size as reflected by GDP, since the latter half of the 1990s.

And Israel has more companies listed on the Nasdaq stock exchange than any other country besides the US and China.

Eden does have a point, however, when it comes to how all this innovation is implemented. As pointed out by the Taub Center’s Dan Ben-David in his article, “The Start-up Nation’s Threat from Within” that appeared in the center’s most recent State of the Nation Report, we are not particularly good at transforming good ideas into higher productivity and higher living standards.

In a comparison of GDP per work-hour in 34 OECD countries, Israel was ranked 23rd in 2011 at just $33.8 an hour. The problem is exacerbated by the fact that fewer working-age Israelis work compared to in other countries – due to high levels of non-employment among Arab women and haredi men.

Another major threat to Israel’s status as a start-up nation is our school children’s low levels of achievement in international scholastic assessment exams. In 2009, for instance, we ranked lower than 22 OECD countries.

Chile and Turkey scored lower. Compounding the problem is the fact that haredi children, who make up one fifth of all primary school pupils in Israel, do not learn English, science and math past eighth grade. And even what is learned through eighth grade is nowhere near the level learned by children in Western countries.

Other factors dragging down the Start-up Nation are our substandard public transportation, our insufficient road infrastructure and the consequent congestion and traffic jams, barely relieved by the expensive Route 6 toll road. Then there is the brain drain, the emigration of academics and hi-tech people in search of higherpaying positions abroad.

So while we have much to be proud of when it comes to the high levels of innovation among a small and elite segment of our population, Eden is right to warn of complacency. We must invest a lot of hard work to ensure that Israel continues to be a Start-up Nation.