In the last few decades, Israel has become one of the most important technological powers
in the world.
Amazingly, with a little more than 8 million inhabitants, this country has more than 4,000
tech companies.
Cisco, Paypal, Google, Facebook, Apple and Intel are only some of the many companies
that develop new products in Israel.
But how did such a small and turbulent country become one of the world´s innovation leaders?
Well that’s what we’re going to be looking at in today’s video.Israel is one of the
most controversial countries and, in truth, it’s pretty difficult to talk about it without
having to refer to wars, religion and various political conflicts.
However, in this video we’re going to try and shed some light on a very different side
of this country.
Because, dear viewer, in the last few decades Israel has become one of the world’s greatest
technological powers, and this is something pretty suprising.
As we mentioned Israel has over 4,000 tech based companies, and 80 of the 500 largest
companies in the world have subsidiaries here orientated towards research and innovation.
In fact, Tel Aviv is, right after Silicon Valley, is the most important technological
centre in the world.
And although it may seem impossible given its size, Israel is the country in the world
with the third most companies listed on the Nasdaq.
Only being behind the US and China.
Israel has more companies listed on this market than Spain, Italy, France, Germany, and the
Netherlands…
PUT TOGETHER!
So how about some like specific examples?
Well, here they are: At the time of publication most of the next iPhone's hardware is being
developed in Israel.
Further, many of Google’s innovations are made in Israel; and Intel, the world´s leader
in microchips, owes most of its success to the innovations of its Israeli subsidiary,
which, by the way, has 11,000 workers, and is one of the largest companies in the whole
country.
And, well, even Microsoft has been considered a semi-Israeli company!
Paypal, IBM, Cisco, Amazon, Facebook…
these are the companies that we use every day, whose technology relies a lot on R&D
that is done in Israel.
This sector makes up to more than 12% of its national GDP and half of its exports.
Alright, so now you are probably wondering: how did they achieve such success?
Now cultural factors are usually considered, but here today we want to focus on three political
keys that were essential in this process.
YOZMA
The 1980s in Israel are remembered as a terrible decade, especially from the economic perspective.
Back then the country was going through a tough crisis: inflation between 1980 and 1985
exceeded 100% every year.
Deficit and public debt were almost an unbearable financial burden on the economy, and in general,
people felt handcuffed due to excessive state intervention
To a large extent, Israel was very dependent on help coming from different parts of the
world.
And even though the situation started to stabilize by the end of the 80s, right at that time
there was a massive arrival of Jewish people from different parts of the Soviet Union.
In very little time, 800,000 new people arrived in the country.
And don’t forget to add perspective to this number, in relative terms, it would be as
if 70 million immigrants arrived to the US.
And now the question for Israel was clear: how could they generate jobs for so many people
in such a depressed economy?
Israel´s only option was to reinvent itself.
At first, the government tried to encourage the newcomers to create companies with subsidies
that promoted the work of entrepreneurs.
But they soon realized that this method didn´t result in prosperous companies...
Immigrants had no experience in management, they lacked commercial knowledge, and they
rarely got any finance.
After all, who would invest their money in a turbulent country like Israel?
And this is when the government realized that the key was to bet on attracting international
venture capital, that is, money used for new ideas and new companies.
In order to do so they came up with the YOZMA program.
Thanks to Yozma, the government created 10 funds of venture capital and allocated $100
million dollars to be used under the these conditions:
Each fund capable of levying 12 million private investors would receive 8 million in public
investment.
In exchange, the government would keep 40% of the property, but in case the investment
was successful, the investors could get these shares from the government just by giving
the government’s money back with a small interest rate.
So, friends, if things worked well, the profits would be mainly for the investors, and if
things didn’t work so well the government would share in the losses.
Now, this may seem unfair, but the truth is that the public investment was relatively
small and, also, the government expected to get the losses back from the taxes generated
by these new companies and all the new jobs.
The ideas was to fire things up and then continue to reap the ongoing benefits.
Since then, most public programs in Israel have followed this same system, and the truth
is the results couldn’t have been any better.
International money started to arrive, there was funding for almost any idea, and in the
first eight years alone the number of funds rose from 20 to 513!
As a result, Israel has today one of the best ecosystems for entrepreneurial capital in
the world and, according to the last OECD data, the investment available for new companies
exceeds $150 dollars per person, per year.
To make a comparison, in Spain, the equivalent figure is only $3.5 dollars, a solid 40 times
less!
The key in this process is that venture capital doesn’t just bring money, with this money
also comes experience and contacts.
Immigration
It could be said that israel is the country which has bet on immigration the most:
One out of every three citizens has been born abroad and 9 out of 10 are either immigrants,
or children or the grandchildren of immigrants.
This is an impressive migratory number that explains the growth of its population from
800,000 inhabitants in 1948 to more than 8 million today.
So, in little more than 60 years, the population has multiplied by 10.
Israel is, in fact, a political and historical exception, because their founding documents,
so to speak: its constitution, expresses the need to have an open immigration policy.
Let’s have a look at what the law of return (still in force) of 1950 says:
“Every Jew has the right to come to this country as an Oleh.”
(LAW OF RETURN, ARTICLE 1) And don’t get this wrong, this isn’t a
minor issue.
Immigration has contributed to the economic miracle as much as any other factor.
No matter what populist politicians say, whose aim is often just to get votes, the wealthiest
nations are usually the ones with more immigrants.
Among other reasons, it is usually because immigrants have higher rates of entrepreneurship
than the local population, and also because immigrants help boost international trade,
especially with their countries of origin.
By the way, if you are interested about immigration, I will link over to some videos about this
at the end of the video!
The quality of Israeli education is almost a national hallmark.
In 1918, 30 years before the founding of the state of israel, Jewish settlers founded the
Hebrew University of Jerusalem.
Israel today has one of the highest rates of people with college degrees, and the country
has had a lot of success with fusion company/universities.
Finance for Israeli universities relies mainly on projects financed by private companies,
so there are reasons for universities to collaborate with them.
Further, they have achieved the best rate of business creation in the OECD:
“Knowledge transfer is essential; this is taking the university and professional world
closer together”
Well, we have seen the main keys to success, but there are other influential factors.
For example, there is the Jewish “chutzpah”, a tendency to question everything.
Something that is key in Jewish culture.
The military service is also a surprising and important thing since it helps social
mobilization forcing young people from different social classes to interact.
And, hey, compulsory military service isn’t exactly great…
but I have to admit it does have some positive effects.
Now, we could also discuss, for example, Netanyahu´s reforms of 2003, which were essential to Israel's
success, but I think it’s better to leave that for a future video.
The thing is, thanks to all of what we’ve discussed today, since the 80s, Israel has
doubled its population, multiplied the number of jobs by four, and grown by an annual average
rate of 4%.
Today, its GDP per capita is higher than other countries like Spain or Italy.
So, what do you think?
Will israel consolidate itself as the leading technological power in the world?
Could its model be repeated in other countries?
Let us know what you think in the comments below.
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Thanks for watching, and as always, I’ll see you in the next video!