NCPA - National Center for Policy Analysis


November 16, 2009

In 1987, Massachusetts Institute of Technology (MIT) economist Robert Solow received the Nobel Prize for his work demonstrating that productivity increases are the basis for durable growth, and the main source of increased productivity is innovation, and especially technological innovation.

If innovation is the key, where does it come from?  The best place to look for a model is the country that has produced the most concentrated combination of innovation and entrepreneurship in the world: Israel, say authors Dan Senor and Saul Singer, in their new book, " Start-Up Nation: The Story of Israel's Economic Miracle."

  • With fewer people than the state of New Jersey, Israel has more companies on the tech-oriented NASDAQ than any country outside the United States -- more than all of Europe, Japan, Korea, India, and China combined.
  • Israel also attracts more of the global pool of venture capital investments per capita than any other country -- 2.5 times America's, 30 times Europe's, 80 times China's, and 300 times India's.

What makes a start-up culture?  The Israeli military, surprisingly, is a big part of this, not so much because of its own research and development, but rather as a result of the training that most Israelis must go through, explain Senor and Singer:

  • The military matures young people faster than the American undergraduate college experience, teaches them about teamwork, serving something beyond themselves, and how to improvise and complete missions with inadequate resources and imperfect information.
  • In the military, Israelis get used to dealing with adversity, as individuals and as a country.
  • Yet unlike other militaries, including that of the United States, they learn that rank and titles are not really what matters, and that junior officers must challenge their superiors if they think they are wrong.

The tendency to tinker, question and improvise that often begins in the military leads to a particular Israeli specialty: technological "mashups" (a process where data or functionality from two or more sources are combined into a single integrated application).

Another major ingredient of Israel's start-up culture is openness to new immigrants, who are natural risk takers, say Senor and Singer.

Source: Dan Senor and Saul Singer, "Israel's lively start-up culture keeps economy thriving,", November 9, 2009.

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