The Unfolding Economic Miracle in Israel

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The Unfolding Economic Miracle in Israel

Israel has become the new Silicon Valley. That's why, despite the fact that Israel is the 100th-smallest country in the world, it has the third-highest number of companies listed on the NASDAQ after the United States and China. Out of the 600 companies on the Tel Aviv Stock Exchange, 140 are infotech companies and 51 are biomedical companies.

Israel is estimated to have 3,500 high-tech startups, the highest number outside of the U.S. That's why Dan Senor and Saul Singer called Israel The Start-Up Nation in a 2009 book of that name.1 Everybody seems to be starting a company — and starting a business is easier than ever, thanks to advances in information technology.

Start-Up Nation: The Story of Israel's Economic Miracle

Another factor is the Israeli culture. They like to come up with new ideas, then rush to see whether they can implement them. Israelis innovate because they have to. The land is arid, so they excel at water and agricultural technology. Until very recently, they have had little oil, so they have had to find alternatives. They are surrounded by enemies, so their military technology is superb and creates lucrative spin-offs, especially in communications.

It helps that the Israeli private sector spends more on innovation as a percentage of GDP than that of any other nation.2 For example, in 2009, it spent 4.3 percent of its GDP on civilian R&D — almost twice the OECD average of 2.3 percent and a much higher percentage of GDP than the U.S., Germany, France, or the UK.


Israel also attracts far more venture capital per person than any other country — $170 in 2010 versus $75 in the United States.3 Yet there does not seem to be enough early-stage money to go around. One reason is that there are simply an awful lot of young companies fighting for a share of the pot.

The military backgrounds of the budding entrepreneurs also sets Israel apart.4 The relationships forged during military service foster frenetic networking in civilian life. "In the army, it's 'Here's an impossible problem, you don't have many resources — solve it yesterday,'" says Avi Hasson, chief scientist to the Israeli government. "When you leave, setting up a company doesn't seem so hard."


The dynamism of Israeli business also owes much to immigration...

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