Israel has become a high-tech superpower over the past two decades. Can the good news last?

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Over the past two decades Israel has been transformed from a semisocialist backwater into a high-tech superpower. Adjust for population and Israel leads the world in the number of high-tech start-ups and the size of the venture-capital industry.

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The Israeli boom ... raises a number of troubling questions.

First, does the economy rest on too narrow a base? High-tech industries employ only 10% of the workforce but account for 40% of exports. Second, why has Israel proved so bad at turning start-ups into domestic giants? It has 3,800 high-tech start-ups but only four high-tech companies with sales of more than $1 billion a year. Third, is Israel capable of producing content for the internet as well as just the hardware and software that constitutes its "plumbing"? And, fourth, why has the land of the high-tech miracle got one of the rich world’s lowest labour-participation rates, just 55%? These questions all add up to one bigger one. Is the Israeli miracle sustainable?

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There are ... reasons for thinking that Israel’s strengths will endure. The government is trying to apply the venture-capital approach that it applied so successfully to start-ups (igniting private-sector creativity rather than picking winners) to late-stage financing. The army is more than a high-tech incubator. It sifts the entire population for talent, giving the most promising techies intensive training in elite units, and inculcates an ethic of self-reliance and problem-solving.

Israel is also good at the sort of technological mash-ups that produce exciting new industries. The inspiration for camera pills (which transmit pictures from inside the human body) came from missiles that can “see” their targets, and the inspiration for heart stents came from drip-irrigation systems.

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However, the main obstacle to Israel’s long-term economic success has nothing to do with how it creates firms. It lies in its failure to assimilate into its business culture both Arab-Israelis and ultra-orthodox Jews, who will together be about one-third of the population by 2025. Only 39% of ultra-Orthodox men and 25% of Arab women are employed ... Israel needs to work harder at dealing with its internal Arab problem; and it needs to tell its ultra-orthodox Jews that, however hard they pray, the rest of the country does not owe them a living.

http://www.economist.com/node/17796932?fsrc=scn/fb/wl/ar/beyondstartup

[Danno 1,228]

Why are we "bank rolling" a High-tech Superpower?

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A big part of Israel's success is its ecology of leading universities in partnership with innovative business and venture capital.

It's the same formula that works in the Bay Area (Stanford, UC Berkeley, Sand Hill Road, and the Silicon Valley icons that sprang from Fairchild, NASA Ames, IBM Almaden etc.) or in Boston Route 128 (MIT, Harvard, DEC, EMC, Raytheon etc.). That ecology is quite unique and hard to replicate. Plenty of areas have top notch universities, investment capital, and existing industry but not all parlay into the same innovation culture (think NYC's Silicon Alley or Scotland's Silicon Glen - both poor imitations of the original).

Israel has such a genuine ecology. In Israel, the sector stretches from south of Tel Aviv (Rishon, Rehovot, Nes tziyona) to east and north (Petach Tikva, Raanana, Herziliya) and up the coast to Netanya and Haifa. It's formed from the confluence of the academic institutions: Technion in Haifa along with Bar Ilan, Hebrew U and Tel Aviv U, together with the IDF, and the native and foreign VC funds that specialized in incubating technology firms they understood: security, robotics, networking technology, lasers, medical devices etc.That in turn has led to Checkpoint, Teva, Tadiran etc. succeeding on the world stage. Another huge part of the story has been Russian immigration from the former Soviet Union in the 90s, which brought countless talented scientists and engineers into the mix.