Israel – ‘The Startup Nation’

The ‘crisis’ in the Middle East could be in reference to any one of the many conflicts that are currently in occurrence in what is perhaps the world’s most volatile region. There are civil wars in Yemen and Syria, an insurgency in Iraq, a proxy conflict between Iran and Saudi Arabia, and another between Iran and Israel. While all have their own unique complexities, none seem to grasp the attention of the world more, or is indeed more difficult to solve than the situation between Israel and Palestine. This is a conflict that dates back to the late-19th century when the Zionist movement formally began, and became all the more contentious following the declaration of the establishment of the State of Israel in 1948. For better and for worse, the struggle has moulded Israel into the most advanced country in the Middle East today.

A Walk into History Israel's History

The presence of a Jewish population in the region of Israel can be traced back nearly 3000 years. Numerous empires and kingdoms have since ruled over this land, but historical records show that there has probably always been at least a small group of Jews who have continuously inhabited the holy city of Jerusalem and its surrounding areas. Fast forward to the late 1890s, after centuries of displacement and migration, a man by the name of Theodor Herzl advocated for the formation of a Jewish state in the region of the ‘Holy Land’, which is what constitutes the country of Israel as we know it today. 

This was the birth of Zionism, which consequently led to the mass immigration of Jews from all over the world to what was then termed as Palestine. Palestine at the time was occupied by the Ottomans until the end of the First World War after which the British Empire gained control of the region. The population was largely made up of Arabs, who could trace their presence in Palestine back to around 650 AD. The Israel/Palestine region has also had a strong Christian community present since the Crusades began at the turn of the first millennium. 

Jews, Christians, and Muslims all lay claim to this piece of land as it holds enormous religious significance for all three faiths. The Temple Mount, which is considered to the be the holiest site in the world, is home to the Dome of the Rock (an Islamic Shrine built on the spot where the Prophet commenced his ‘Night Journey’), the Church of the Holy Sephulcre (built on the spot where Jesus was crucified), and the Western Wall (which lies in front of the Foundation Stone, the holiest site in Judaism). The Foundation Stone is the most important site of all, as it is the spot wherein God created the earth, according to all three religions.

Judaism, Christianity, and Islam all share the same God, Abraham, and thus are known as the three Abrahamic religions. Jews and Muslims believe that they are the direct descendants of Abraham, and Christianity was formed as a sub sect of Judaism, having broken away from it in the first century. The differences revolve around the interpretations of God in their sacred scriptures (the Bible, the Torah, and the Quran). The fact that all three religions identify the small 37-acre piece of land known as the Temple Mount to be their holiest sites tells you that they share more similarities than they do differences.

The Jews in particular have a strong historical association with Jerusalem as it plays a vital role in the early history of Judaism. The Kingdom of Israel was promised to Abraham’s second son, for example. Moses also led the Exodus from Egypt back to Israel. It has been home to the site of the First and Second Temple, which both represented the centre of ancient Jewish worship. Jerusalem has been captured and recaptured 44 times by various forces over the centuries, and over the course of this time the Jews had been forced to relocate to other parts of Europe and Africa. Zionism emerged from the fact the Jews had no specific homeland which was blamed for the persecution that they suffered at various points throughout history.

The Economist - The trouble at Temple Mount

It is important to understand the history behind Israel in order to understand the modern state. As Zionism gained momentum and more and more Jews relocated back to Palestine, there was invariably going to be conflict. The fact that the Jewish people were willing to fight for this land is emblematic of the extent of their beliefs. Israel is surrounded by a number of Arab states and they share adversarial relations with all of them. It is also a land devoid of any real natural resources. Golda Meir, Israel’s first female Prime Minister, remarked, “Let me tell you something that we Israelis have against Moses. He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil”, referring of course to the Exodus.

In spite of these difficulties, the Jews have fought tooth and nail to keep a hold of that land, and what’s more is that Jews from all over the world, in the face of constant danger, have made the choice to immigrate there. Israel’s survival thus far and its many triumphs in battle can at least partly be attributed to the support it has received from nations like the US and the UK. It has not achieved its resilience on its own. It has, however, carved out a unique position for itself in the world’s economy which is a direct result of its geographic location and the many problems that come associated with it.

Early Israeli Economy

For the first three decades, Israel’s economy was largely controlled by the state. The government provided for its people with the help of foreign aid and German reparations following the Second World War. Before the formation of the state, Jewish immigrants in Palestine formed what is known as a ‘kibbutz’. Kibbutzim are agricultural communes where people live and work together and where all wealth created is held in common. 

The main activity is agriculture but members also take part in industry. Education, food, housing, healthcare etc. is all managed by the commune where administrative heads and policies are decided at general meetings attended by all members. The kibbutzim were hugely responsible for the early development of Israeli society as they served as an attraction for the immigration population. The population of the kibbutzim today is only around 100,000, but these individuals continue to make significant contributions to Israel’s economy and political leadership.

The kibbutzim likely played an important role in shaping the early economic policy of Israel too, which was rooted in socialism. Agriculture, manufacturing, and construction were the three main facets of the economy. Gross national product grew rapidly during the early years, but by the 1970s they began to slow down. The main educational institutes in Israel were built before the formation of the official state. The Hebrew University of Jerusalem, the Technion-Israel Institute of Technology, and the Weizmann Institute of Science were all built between 1924 and 1935. These institutions laid the foundation for the modern economy of Israel, which largely revolves around its tech sector. The manufacture of electronics has always been a contributing factor to the country’s GDP. In the 1990s, however, after free-market policies had been fully enacted in the country, the Israeli government decided to begin heavily investing in research and development.

The Hi-tech & Startup Boom

With a highly-skilled labour pool, the government, in partnership with the private sector, worked to encourage startups and other small tech firms to create high-tech products which could compete with Silicon Valley. The success of this decision is clear in the numbers seen today. More than 80 Fortune 500 companies have set up R&D labs in Israel to date. Between 1999 and 2014, Israel started more than 10,000 companies in the tech space, and more than half of them are still in operation. This is a staggering amount considering the failure rate globally. Of those 50% that are still around, 2.6% have annual revenues in excess of $100 million. Some 250 Israeli companies have also gone public on the NASDAQ, with only the US and China being able to boast a higher number.

How did they achieve this? In simple terms, investment. Israel’s government spends more money as a percentage of its GDP than any other nation on research and development. But simply throwing money at a venture does not guarantee success. The reason that the first 3-4 paragraphs of this article are focused on the history of the region is because it has shaped the success of Israel’s tech industry today.

Being in such a volatile region and having so many enemies in the neighbouring states, Israel has had to build a strong and effective military. It is a well known fact that the Second World War led to many great scientific discoveries that had immense utility outside of the theatre of war. Similarly, Israel has benefitted from its military industrial complex. 

In the period following the Yom Kippur War in 1973, Israel’s defence budget made up a third of its GDP. It is also one of the few nations that still has mandatory conscription, with men having to serve 3 years and women, 2. Since every individual has to go through this process, the Israeli military can have its pick of the best and brightest of its country’s youth. The very best get drafted into specialsied elite units. A top-secret intelligence division known simply as ‘8200’ is one such unit. After a rigorous selection and training process, the students are thrown into a high-stakes environment where they have to make decisions and solve problems that have a direct impact on human life.

Considering the manner in which the military functions with regards to the country’s youth, it essentially operates as an incubator for startups. Once students complete their service, they are equipped with the skills required to succeed in the tech world. Compared to the high-pressure situations that the military puts them in, the challenges of working at a startup pale in comparison. The military also presents a great networking opportunity, with many units having active alumni programs.

Another important determinant of Israel’s current tech scene has to do with its geographical location. On the one hand, the land is resource poor, meaning that the country has to invest in its intellectual capacity to maximise its economic gains. Innovation in this sense has always been a feature of Israel’s economy as it had to figure out a way to make the most of its scarce water resources from the very beginning. The result was the drip irrigation system, where water and nutrients are delivered directly to the plants root zone, minimising waste. We already know the kind of relationship that Israel has with its neighbours. This means that trade between Israel and the Arabic countries is virtually non-existent. With Israel’s population being less than 10 million, it can not generate enough domestic demand to achieve success economically. This has led to businesses in Israel focusing on the global markets and this is why Israel’s tech industry is centered around high-tech solutions. The country commands 10% of the global high-tech market share. In fact, high-tech exports make up 45% of the country’s total foreign sales. 

Israel is a country that was built by immigrants from all over the world. They have had waves of immigration in various decades starting from the 1920s, and most recently in the 1990s after the collapse of the Soviet Union. The last wave in particular contributed the most to the country’s high-tech boom, as there were a large number of scientists and engineers who arrived. Similar to the US in the 19th and early 20th centuries, Israel’s society is filled with risk-taking, entrepreneurial individuals who have a positive attitude towards failure. Diversity is also said to have a productive association with innovation, which is something that can be observed in Silicon Valley. Given that Israel is also a very young country, there are no established norms in the world of business. This gives its people a certain degree of freedom when it comes to experimentation as well.

Statistic: Highest-valued startups (next gen unicorns) in Israel with a valuation below one billion USD as of May 2020 (in million U.S. dollars)* | Statista
Find more statistics at Statista

Israel’s economy today resembles that of any other developed nation. It ranks highly on GDP per capita and on the Human Development Index. It is 5th in the world in terms of the share of its people in high-skilled employment. They have led the world in the publication of stem-cell research papers per capita since the year 2000 and over 90% of Israeli homes use solar energy for hot water. More than 50% of Israel’s water needs are produced artificially through a desalination facility, which is also the largest of its kind anywhere in the world. In spite of its acute water shortage, Israel is on track to become a net exporter of water in the next few years. 

For all its many positives, the country is still lacking when it comes to its treatment of the Palestinians. Given the size and power of its military, it has been easy for Israel to opress Palestinian citizens in recent times. Israeli’s routinely settle in occupied territories and the army has been accused of several infringements. On the one hand, Israelis will argue that their historical persecution justified their current paranoia with respect to their neighbours. Yet, little allowance has been made in the debate for the fact that the events of history do not justify the acts of violence against people today, who have little to nothing to do with the abuses of the past. Israel is also of strategic importance to the US. Having an ally in the Middle East is certainly high on the prority list of American foreign policy. The Jewish diaspora is very effective at lobbying for support around the world, and this has greatly helped Israel in its success as a nation.

Whatever the opinions may be, one can not help but be impressed by what Israel has achieved scientifically. It has made the very most out of a bad situation. Nations with greater resources and fewer threats have faltered whereas a country that has been up against the odds from the very beginning has somehow found a way to thrive. At the end of the day Israel, and in particular Jerusalem are an important historical and cultural asset of the human race. That 37-acre piece of land has gone on to influence so much of life today. As things currently stand, it will probably continue to have a say in things, but hopefully without any more detriment to human life.

Aljazeera: Gaza: Daunting rebuilding task after 11 days of Israeli bombing