Sunday, November 20, 2011

Day 6: Coming Home

Day 6 was actually one long night. We left Tel Aviv at 12:40 AM after spending two plus hours winding through security (which given the threats, I actually appreciated.) We arrived in New York 11 hours later, which because of the seven hour time shift, was still dark.

So why is Israel so innovative? Experts such as the authors of Start-up Nation and venture capitalist Jon Medved cite the following reasons:

1. Risk. As a people, the families of Israelis have survived the holocaust, fought eight wars since 1948, and still have heads of nations calling for their extermination. What kind of threat is a business failure? Israelis are very willing to take risks.

2. Immigration. The Israelis opened their doors to Jews from everywhere in 1948. Even though the Jewish immigrants had a common language and common historical memory, they brought the motivation and the cultural interplay that have made first generation immigrants among the most successful entrepreneurs in the US. Shortly after the Israeli Declaration of Independence in 1948, some 687,000 Jews from around the world came to Israel. THEY CAME KNOWING THAT THE ISRAELIS WERE AT WAR WITH THE ARABS. Between 1989 and 2000, more than 950,000 Russian Jews immigrated to Israel. Many of the latter were well educated in science and medicine and immediately contributed to the country's intellectual horsepower.

3. Ability to Question Authority. It is probably not an accident that three of the world's five major religions started in Jerusalem. Jews have been questioning the reigning authority for a long time, and not without consequence. Today, according to venture capitalist Jon Medved, it is not uncommon for 19 year old employees to question a CEO about a decision. It is not uncommon for military privates to question officers. Why not? The junior employee or soldier may know more about a given situation than the Officer or CEO. In Israel, the culture encourages them to speak up without fear of retribution. It is an inherent part of the innovation culture.

4. Universal Military Service. Every 18 year old (both men and women) have required military service. It provides a common experience and a common understanding of the importance of defense for all young Israelis. The best and brightest are selected for elite units. One of the best units requires eight years of participation. In the first year, recruits spend three months rotating and learning about each branch of service. They then spend two years getting the equivalent of a BS in computers or physics. The next five years are spent working on weapon systems, defense strategies and advanced security, while completing other course work. When they leave the military at the ripe old age of 26, the venture capitalists are lined up to grab them as start-up CEOs.

5. Government Policy.

Stan Fisher is the current Governor of the Bank of Israel, a post equivalent to the Chairman of the US Federal Reserve. Fisher is an American born in Northern Rhodesia. He has Bachelor and Masters Degrees from the London School of Economics and a Ph.D in Econonmics from MIT. Before coming to Israel, he was Chief Economist of the World Bank. Fisher recognized that low interest rates were a key to investment, and like the US, he lowered interest rates in 2006 to encourage investment. Unlike the US, he did not lower the requirements for home mortgages. Israel still required up to 50% money to get a home loan. (For that matter, government grants generally require a 50% private match.) As a consequence, Israel did not have the meltdown that affected the US economy.

The questioning of authority makes Israeli government fairly contentious. We heard three speakers with three widely different views on the Palestinian issue. However, on the issue of promoting innovation and start-up companies, of building infrastructure, and in supporting research and the university system, the government seems to be of one accord.

6. Education. There is a culture in Israel that values education. I hope I am not generalizing too much to say that this is a part of the Jewish DNA. It was clearly reflected in the visits we had.

So can it be sustained?

In December, 2005, after only six months in this job, Bill Ward, a Clemson Professor in International Business and a former World Bank economist, invited me to join him to look at the Celtic Tiger in Ireland. Ireland and SC are almost the identical population and identical land area. Ireland was the poster child for the new economy. Bill knew most of the leadership of the major Irish economic development agencies from his tenure at the World Bank, and as a consequence, we met with the heads of all of them. I came away very impressed with what they had done, but I did not see much direct translation to South Carolina. We could not implement a 12% corporate tax rate. We could not provide free four year degrees to those that wanted it. We could not be the English speaking interface between high tech companies in America and the European market. As it turned out, perhaps Ireland could not do that either.

My sense from leaving Israel is different. They are not just hosting American companies like Intel, Google, etc. They are innovating for them. They are not just relying on American superstars, but they are spinning out companies on their own, in fact some 700 per year. They have their own venture capital infrastructure. They have first class educational institutions that are largely focusing on scientific innovations. Those insitutions are providing significant research and development with an ey towards commercialization. I did not have that sense in Ireland.

There was a T-Shirt in a street shop in old Jerusalem that said "We Have Your Back America."

Short of the Iranians lobbing a nuclear device towards Israel, I believe that what they are doing is sustainable.

On the flight from Tel Aviv to New York, I sat next to a man with a craggy face and a pony tail to mid back. He was reading an old book on mathematics (I did not write down the title.) I struck up a conversation. Turns out that he was a Doctor at the Hadassah in Jerusalem, former Department Head and still practicing medicine at 75. He was flying to New York to visit one of his four sons. Two were physicians, one was working on his post doc in physics and one was a banker. A picture of Dr. London Mordechai will be on the blog pictures.

There will be one more blog on what can we learn from Israel.

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