Start-up Nation (30 page)

There are two primary reasons why Israeli Arabs have low participation rates in the economy. First, because they are not drafted
into the army, they, like the
haredim
, are less likely to develop the entrepreneurial and improvisational skills that the
IDF
inculcates. Second, they also do not develop the business networks that young Israeli Jews build while serving in the military,
a disparity that exacerbates an already long-standing cultural divide between the country’s Jewish and Arab communities.

Each year, thousands of Arab students graduate from Israel’s technology and engineering schools. Yet, according to Helmi Kittani
and Hanoch Marmari, who codirect the Center for Jewish-Arab Economic Development, “only a few manage to find jobs which reflect
their training and skills. . . . Israel’s Arab graduates need to be equipped with a crucial resource which the government
cannot supply: a network of friends in the right places.”
⁸
And in the absence of those personal connections, Israeli Jews’ mistrust of Israeli Arabs is more likely to hold sway.

Another problem is the bias within the Israeli Arab community against women in the workplace. A 2008 study by Women Against
Violence, an Israeli Arab organization, found that public opinion among local Arabs may be slowly changing, but traditional
attitudes are still entrenched. In a survey, even participants who “opposed older attitudes” still agreed with the statement
“Arab society is predominantly patriarchal, where men are perceived as the decision-makers and women as inferior and ideally
subservient. . . . A man who treats his partner other than [according to] the acceptable norm endangers his social standing.”

Despite this paradox, Women Against Violence director Aida Touma-Suleiman said that she sees men as partners for change, including
a new acceptance of women who work outside the home. “There are Arab men who are unhappy with this balance of power, and wish
to improve the relations between the genders. They see it as in their interest as much as anyone else’s,” she said.
⁹

Yet because of the high birth rates in both the
haredi
and the Arab sectors, efforts to increase workforce participation in these sectors are racing against the demographic clock.
According to
Israel 2028
, the report issued by an official blue-ribbon commission, the
haredi
and Arab sectors are projected to increase from 29 percent of Israel’s total population in 2007 to 39 percent by 2028. Without
dramatic changes in workforce patterns, this shift will reduce labor-force participation rates even further. “The existing
trends are working in stark opposition to the desired development,” the report warns.
¹⁰

As he was campaigning to return to the premiership, Bibi Netanyahu made getting Israel to number among the top ten largest
(per capita) economies in the world a centerpiece of his agenda. An independent think tank, the Reut Institute, has been pursuing
a similar campaign called Israel 15. Gidi Grinstein, the founding president of Reut, was an adviser to former prime minister
and current defense minister Ehud Barak, who had been a political rival of Netanyahu’s. Yet Grinstein agrees with Netanyahu
that Israel’s goal should be not just to keep up with advanced nations but to rise to rank among the top nations as measured
by
GDP
per capita.

As Grinstein sees it, “This challenge is not a luxury, it’s a necessity.” At a minimum, Israel must grow 4 percent per capita
for a decade, he believes; the current gap in living standards between Israel and other developed countries is dangerous.
He says, “Our business sector is among the world’s best, and our population is rich in skills and education. At the same time,
the quality of life and the quality of public services in Israel are low, and for many, emigration is an opportunity to improve
their lot.”
¹¹

This may be overstated, since record numbers of Israeli expatriates have recently been returning from the United States and
other countries, in part due to a newly enacted ten-year tax holiday on foreign income for such returnees. And, of course,
other factors besides income enter into “quality of life” decisions.

But the point that Israel can, should, and must grow its economy faster is crucial. Of all the threats and challenges facing
Israel, an inability to keep the economy growing is perhaps the greatest, since it involves overcoming political obstacles
and giving attention to neglected problems. Israel has a rare, maybe unique, cultural and institutional foundation that generates
both innovation and entrepreneurship; what it lacks are policy fixes to further amplify and spread these assets within Israeli
society. Fortunately for Israel, it is probably easier to change policies than it is to change a culture, as countries like
Singapore demonstrate. As the
New York Times
’ Thomas Friedman put it, “I would much rather have Israel’s problems, which are mostly financial, mostly about governance,
and mostly about infrastructure, rather than Singapore’s problem because Singapore’s problem is culture-bound.”
¹²

The most careful thing is to dare.

—S
HIMON
P
ERES

A
S WE WAITED IN ONE OF THE ANTEROOMS
of the President’s House, we were not sure how much time we would get with President
Shimon Peres. At eighty-five, Peres is the last member of the founding generation still in high office. Peres began his career
as a twenty-five-year-old sidekick to David Ben-Gurion and went on to serve in almost every ministerial post, including two
stints as prime minister. He also picked up a Nobel Peace Prize along the way.

Abroad, he is one of the most admired Israelis. At home, his reputation is more controversial. Peres is known primarily as
the father of the 1993 Oslo accords, which were famously instituted with a handshake between Yitzhak Rabin and Yasir Arafat
in the presence of Bill Clinton on the White House lawn, but which came to symbolize, to many Israelis, false hopes, terrorism,
and war.

It is hard to exaggerate Peres’s impact on Israel’s diplomacy, but this is not what we were primarily interested in talking
to him about. Less well known, but no less significant, was his role as a serial entrepreneur of a very unique sort—a founder
of industries. He never spent a day of his life in business. In fact, he told us that neither he nor Ben-Gurion knew anything
about economics. But Peres’s approach to government has been one of an entrepreneur launching start-ups.

Peres grew up on a kibbutz before the founding of the state. It wasn’t just the social and economic structure of this Israeli
invention that was innovative; its very means of sustenance represented a huge departure. “Agriculture is more revolutionary
than industry,” Peres was quick to point out as we finally settled into his book-lined office, surrounded by mementos from
Ben-Gurion and world leaders.

“In twenty-five years, Israel increased its agricultural yields seventeen times. This is amazing,” he told us. People don’t
realize this, Peres said, but agriculture is “ninety-five percent science, five percent work.”

Peres seemed to see technology everywhere, and long before Israelis themselves thought in such terms. This may have been one
of the reasons Ben-Gurion backed Peres so strongly; the “Old Man” was also fascinated by technology, he told us. “Ben-Gurion
thought the future was science. He would always say that in the army it’s not enough to be up to date; you have to be up to
tomorrow,” Peres recalled.

So Ben-Gurion and Peres became a technological tag team. Peres and American swashbuckler Al Schwimmer started dreaming up
an aeronautics industry while flying over the Arctic in 1951. But when they got back to Israel, they were met with stiff opposition.
“We can’t even make bicycles,” ministers told Peres, in days in which a nascent bicycle industry was indeed failing, refugees
were continuing to flood into the country, and basic foodstuffs were still being rationed. But with Ben-Gurion’s backing,
Peres was able to prevail.

Later on, Peres’s idea of starting a nuclear industry was similarly written off. It was seen as too ambitious, even by Israeli
scientists in the field. The finance minister, who believed that the Israeli economy should focus on textile exports, told
Peres, “It’s very good you came to me. I shall make sure you won’t get a penny.” So with typical disregard for the rules,
Ben-Gurion and Peres somehow funded the project off-budget and Peres went around the established scientists, turning instead
to students at the Technion, some of whom he sent to France for training.

The result was the nuclear reactor near Dimona, which has operated since the early 1960s without mishap and has reportedly
made Israel a nuclear power. As of 2005, Israel was the world’s tenth-largest producer of nuclear patents.
¹

But Peres didn’t stop there. As deputy minister of defense, he pumped money into defense R&D, to the dismay of the military
leadership, which, perhaps understandably, was more concerned about chronic shortages of weapons, training, and manpower.

Today, Israel leads the world in the percentage of its
GDP
that goes to research and development, creating both a technological edge critical to national security and a civilian tech
sector that is the main engine of the economy. The key, however, is the way the entrepreneurial nation building Peres embodies
has morphed into a national condition of entrepreneurship.

This transformation was not easy, planned, or foreseen. It came later than Israelis would have liked—there was a “lost decade”
of low growth and hyperinflation between the founders’ era of high growth and the current era of high tech. But it came, and
a thread runs through the founders’ time of draining swamps and growing oranges to today’s era of start-ups and chip designers.

Today’s entrepreneurs feel the tug of this thread. While the founders’ milieu was socialist and frowned on profit, now “there’s
a legitimate way to make a profit because you’re inventing something,” says Erel Margalit, one of Israel’s top entrepreneurs.
“You’re not just trading in goods, or you’re not just a finance person. You are doing something for humanity. You are inventing
a new drug or a new chip. You feel like a
falah
[“farmer” in Arabic], a farmer of high tech. You dress down. You’re with your buddies from the army unit. You talk about
a way of life—not necessarily about how much money you’re going to make, though it’s obviously also about that.” For Margalit,
innovation and technology are the twenty-first-century version of going back to the land. “The new pioneering, Zionist narrative
is about creating things,” he says.

Indeed, what makes the current Israeli blend so powerful is that it is a mashup of the founders’ patriotism, drive, and constant
consciousness of scarcity and adversity and the curiosity and restlessness that have deep roots in Israeli and Jewish history.
“The greatest contribution of the Jewish people in history is dissatisfaction,” Peres explained. “That’s poor for politics
but good for science.

“All the time you want to change and change,” Peres said, speaking of both the Jewish and the Israeli condition. Echoing what
we heard from almost every
IDF
officer we interviewed, Peres said, “Every technology that arrives in Israel from America, it comes to the army and in five
minutes, they change it.” But the same thing goes on outside the IDF—an insatiable need to tinker, invent, and challenge.

This theme can be traced to the very idea of Israel’s founding. The modern state’s founders—or national
entrepreneurs
—were building what might be called the first “start-up nation” in history.

Many other nations, of course, have emerged from scratch, at the stroke of a departing colonial power’s pen. Neighboring Jordan,
for example, was created in 1921 by Winston Churchill, who decided to hand the Hashemite clan a kingdom.

Other countries, like the United States, were the product of a truly entrepreneurial or revolutionary process, rather than
a national amalgamation that had accrued slowly over centuries, such as England, France, and Germany. None, however, were
the result of such a conscious effort to build from scratch a modern reincarnation of an ancient nation-state.

Some modern countries, of course, can trace their heritage back to ancient empires: Italy to the Romans, Greece to the Greeks,
and China and India to peoples who lived in those areas for thousands of years. But in all these other cases, either the original
commonalty continued in an unbroken chain from the ancient generations to the modern one, without ever completely losing control
of its territory, or the ancient people simply disappeared, never to be heard from again. Only Israel’s founders had the temerity
to try to start up a modern first-world country in the region from which their ancestors had been exiled two thousand years
earlier.