By Zachary A. Goldfarb
Washington Post Staff Writer
Sunday, January 31, 2010; B07
The Story of Israel's Economic Miracle
By Dan Senor and Saul Singer
Twelve. 304 pp. $26.99
Dan Senor and Saul Singer, who have never shied away from the Middle East's controversies, have accomplished a feat in "Start-up Nation." They've written a study of Israel that makes little mention of the nation's relations with its neighbors or its complex internal politics. Senor, formerly top spokesman for the U.S. Coalition Provisional Authority in Iraq, and Singer, formerly editorial page editor of the Jerusalem Post, marvel at how this tiny country of just more than 7 million people has become the technological wunderkind of the world. And it is marvelous. Tel Aviv, once a target of suicide bombers and scud missiles, is a bustling town of dotcoms, biotechs and mobile companies. Israel punches far above its weight in attracting venture capital, the lifeblood of start-up companies. Its economy was barely touched by the global financial crisis.
How has Israel accomplished all this? Senor and Singer have a few ideas. One is the role played by Israel's military, which has funneled countless dollars into research leading to profitable technologies -- such as the camera invented to help a missile hit its target which an Israeli entrepreneur transformed into a camera that could be installed in a pill ingested by the human body. Conscription means that virtually all of Israel's youths have some technical expertise and some leadership skills. Other policies are also cited, such as allowing Jews from anywhere to settle in Israel, which meant that thousands of highly educated Jews immigrated after the fall of the Soviet Union. Also of benefit is a steady flow of financial support for new companies that have no guarantee of success.
But the book's real explanation for Israel's success might be called the chutzpah thesis, the belief that Israelis have an uncanny drive to reject conventional wisdom, overcome setbacks and embrace adversity. Saul and Singer write, "An outsider would see chutzpah everywhere in Israel: in the way university students speak with their professors, employees challenge their bosses, sergeants question their generals, and clerks second-guess government ministers." So it's not just the formal training that makes Israeli soldiers good entrepreneurs, it's that they've been taught to argue with their generals. It's not the fact that Russian Jews had a mastery of math and science that made them excellent engineers, it's the adversity they overcame in leaving their native country.
The book weaves together colorful stories of Israeli technological triumphs. Shvat Shaked founded a cybersecurity firm with his old buddy from Army intelligence and had the chutzpah to bet a top executive at PayPal, the online commerce company owned by eBay, that his few dozen engineers could beat PayPal's thousands in developing secure online software. Not too much later, PayPal bought Fraud Sciences for $169 million. Then there's Michael Laor, an Israeli-educated engineer for Cisco who convinced the company to open a research center in Israel. From there, Cisco bought nine other Israeli companies and invested $1 billion in the local economy, moves that led to the development of major new Internet technologies.
It might be too much to ask for Senor and Singer to draw straight lines between their theories about Israel's success and these case studies, and they may be stretching a bit when they say Israel's experience holds lessons for the world, including the United States. They say Israel's story is "not just of talent but of tenacity, of insatiable questioning of authority, of determined informality, combined with a unique attitude toward failure, teamwork, mission, risk, and cross-disciplinary creativity." But it's hard to see how these traits -- which are no doubt important but still highly idiosyncratic and cultural -- can be applied elsewhere systematically. Who's to say that a highly regimented culture emphasizing the study of math and science isn't equally effective at fostering technological development and economic triumph? The experience of the fast-growing economies of East Asia, where discipline and conformity are virtues, suggests there are different paths to success. Meanwhile, the need to take risks and overcome adversity is an obvious element of success in many countries -- certainly in the one that produced Bill Gates and Steve Jobs.
The authors might have tried harder to place Israel's economic and technological success in the context of the broader political challenges facing the country and the region. By doing so, they could also have made the book sound less like part of a publicity campaign. (Senor is a professional investor in Israel.) Will Tel Aviv remain a corner of Silicon Valley transplanted to the Middle East, or can its vibrancy mean more to the Jewish state and the region? Many Israeli companies featured in the book sold out to multinationals from the United States and Europe. Can Israel's success continue even if its neighboring countries continue to suffer economically? In this sense, Israel is not only a nation boasting many start-up tech companies, but truly a start-up nation.
Zachary Goldfarb covers financial policy for The Post.