The Israel Effect

The slightly breathless yet fascinating story of how one little country forged its world-shaping high-tech industry from the sands of the desert and the mosquito-infested waters of the swamps.

Start-up Nation: The Story of Israel's Economic Miracle, by Dan Senor and Saul SingerTwelve Books, 320 pages, $27

Shimon Peres is a believer. Carmakers to this day insist that upstart start-up entrepreneur Shai Agassi is dreaming. They maintain that the wholly electric car, and the exchangeable battery that will power it, being touted by the young man are the stuff of fantasy, not the future. But the Israeli president decided to help the technology visionary on his quest to change the world, by arranging and attending Agassi's breakthrough meeting with Renault chief Carlos Ghosn in 2007.

For all his confidence, Agassi went into the meeting a tad pessimistic, having received icy-cold shoulders from industry leaders before.

"Peres began to speak so softly," write the authors of "Start-up Nation," "that Ghosn could barely hear him, but Agassi was astounded [at the president's firm support] ... 'Look, Mr. Peres,' Ghosn said, 'I read Shai's paper' -- Agassi and Peres tried not to wince, but they felt they knew where this meeting was heading -- 'and he is absolutely right ...' Peres was almost caught speechless. Just minutes ago they'd received an impassioned lecture [from another auto executive] on why the fully electric car would never work ... They'd never heard all this [clear support for the concept] from an actual carmaker. Peres couldn't help blurting out, 'So what do you think of hybrids?'"

No question about it, Israel's start-ups and the Israeli entrepreneurial spirit are stuff that other countries envy and yearn to emulate. The subject of how Israel did it is inarguably an important one, mostly to Israel itself. It is a pity that the credibility of the subject matter in "Start-up Nation: The Story of Israel's Economic Miracle" can be tarnished by a jarring, tub-thumping patriotism. And the whiffs of breathless sensationalization, as in the above extract -- whispers, astonishment, wincing, speechlessness in the space of a few sentences describing a business meeting -- are downright weird.

The inside story of how Peres helped Agassi, son of Iraqi and Moroccan immigrants to Israel, who emerged as a superstar entrepreneur, flesh out his dream of changing the world through electric cars is gripping enough without Harlequinesque embellishments such as, "Peres couldn't help blurting out..." Shimon Peres, statesman extraordinaire, never blurted anything in his life.

Good thing Ghosn didn't clasp his throat and faint. What he did do, according to the authors, is "confidently" explain why he wasn't interested in taking Renault along the hybrid route: "A hybrid is like a mermaid: if you want a fish, you get a woman; if you want a woman, you get a fish." Now we know.

Happily, that tendency to adorn the text with whispers and gasps gradually diminishes, though it never disappears, and the description of meek Shvat Shaked, founder of an Israeli start-up called Fraud Sciences, selling the seemingly naive "good people, bad people" concept behind his groundbreaking anti-fraud software to PayPal's skeptical chieftain Scott Thompson is nothing short of hilarious. Bored and irritated by Shvat's accented, unimpressive pitch, Thompson -- who knows perfectly well how much effort and money credit card and other companies put into combating fraud -- tried to get rid of the pest he'd agreed to see as a favor, by giving him a mission. Not mission impossible, okay, but certainly mission extremely difficult. He told Shvat to analyze 100,000 online transactions for evidence of fraud and get back to him when done.

As Fraud Sciences had taken five years to analyze 40,000 transactions, "Thompson figured he wouldn't be seeing the kid anytime soon," if ever. That was a Thursday. By Sunday, Shvat was back. Dumbfounded, Thompson had his experts comb through Fraud Sciences' results. They concluded that the Israeli start-up had done a better job with less data than PayPal's own systems could have achieved.

Trained to think under fire

The writing turns positively evocative in describing how low-ranking soldiers overcame the threat of Egypt's Sagger anti-tank missile attacks during the Yom Kippur War through innovation in the field. The account would move a stone to tears. Israel was unprepared for war in general, and Col. Amnon Reshef and his men in the tank forces were flummoxed by a mysterious weapon the Egyptians were using. "At first he thought the tanks were being hit by rocket-propelled grenades," the authors relate. The battalion pulled out of RPG range, to no avail.

"As the battle raged, a clue emerged. The tank operators who survived a missile hit reported to the others that they'd seen nothing, but those next to them mentioned having seen a red light moving towards the targeted tanks ... The commanders had discovered Egypt's secret weapon." It was a wire-guided missile with a 3,000-meter range that could be fired by individual enemy soldiers, against which the Israeli tanks had no ready answer. And they couldn't just contact headquarters for solutions. There were none.

Being Israeli soldiers trained to think for themselves, though, they weren't paralyzed by the absence of orders from above.

Having analyzed what the problem was, the men had to forge a solution in the field. "In the heat of battle," write Dan Senor and Saul Singer, they worked out the weapon's weaknesses. "The Saggers ... depended on the shooter retaining eye contact with the Israeli tank. So the Israelis devised a new doctrine: when any tank saw a red light, all would begin moving randomly while firing in the direction of the unseen shooter." The moving tanks kicked up dust that obscured the target for the shooter. It worked.

Of course, we don't know which attempts didn't work. The book is a paean to the Israeli mind, and sometimes reads that way. Take the phrase "economic miracle." Even discounting the possibility that the authors truly had divine intervention in mind, the use of this phrase suggests that Senor and Singer are not unbiased. In any event, the authors, the former a U.S.-based expert on foreign relations and private equity, and the latter an editor and columnist for The Jerusalem Post who lives in Israel, don't claim to have produced an objective study of the Israeli entrepreneurial spirit. Theirs is an emotional, adulatory descrip-tion that can on occasion detract from the importance of the book's message. Which is: Given that Israel started as a battle-torn sandpit studded with mosquito-infested swamps in the aftermath of World War II, its economic achievements are truly extraordinary.

True, Israel was never a desert wasteland. The "miracle" didn't start from scratch. Teva Pharmaceutical Industries, for instance, today the biggest generic drug manufacturer in the world, has been around since 1901, though then it was called Salomon, Levin and Elstein and was a wholesale distributor. Food manufacturer Osem was founded in 1942, as a marketing company, six years before the State of Israel. There was legal infrastructure in place, inherited from the previous masters of the region -- Turkey and England. Still, these facts do not detract from the remarkable nature of Israel's "fiftyfold economic growth within sixty years," and its rise to technology powerdom.

Never say die

Israel's circumstances may be unique, yet other countries, even corporations, can gain much from its story.

As demonstrated by data presented in the book's introduction, the country has the most non-American companies listed on New York's Nasdaq exchange. Venture capital investment per capita is among the highest in the world. Israeli engineers, claim the authors, saved Intel (yes, that one ) from oblivion by thinking outside the box and ingeniuously and tenaciously bucking authority at the giant chipmaker to insist that their ideas be heard: No, speed was not paramount -- efficiency was, they insisted. Intel management was in thrall to ever-faster clock speed but that metric was obsolete, the Israelis adamantly insisted. The Intel chieftains "were ready to strangle the Israeli team, according to some of those on the end of Intel Israel's 'pestering,'" which was "tantamount to trying to tell Tiffany's that carat size does not matter." Good thing for them, and for Intel, that they prevailed.

Multinationals the world over comb Israel for ideas, talent or whole companies to acquire. How did this happen?

The "untold story" of Israel's economic accomplishments actually has been told not a few times, mainly in the country's daily papers. Senor and Singer's unique contribution is to tie together the myriad stories of Israel: Take a young nation born in bloodshed, add a melting pot of nationalities and ethnicities, mix in the Jewish cultural aspiration to excel in one's profession, and an army that is light on officers but heavy on grunts who need to do the thinking for themselves (or die ). Toss in a healthy dose of audacity, an indefatigable willingness to hurl oneself into the maelstrom time and again, contempt for the trappings of hierarchy -- and presto. What we receive is a unique combination of factors that, combined with sound science, birthed an "economic miracle": From a base of almost no natural resources and an economy ravaged by one war after another, Israel created a flourishing, booming sector producing one breakthrough technology after another.

It is intuitively understandable that "a nation of immigrants is a nation of entrepreneurs," as prime ministerial adviser Gidi Grinstein, founder of the Reut Institute, is quoted saying. It is also intuitively obvious that people who overcame and still face tremendous odds will develop the kind of grit needed to succeed -- witness the tale of Intel Israel's Dov Frohman, orphaned in Europe by World War II, who plugs the "counter-narrative" about war-torn Israel: When the missiles are falling, it keeps on truckin', even if the kids have to come to the workplace because schools are closed, resulting in shared "kindergarten duty."

But who knew that an innate inability to stiffen to unblinking attention when your commander enters the room and a tendency to call generals by nicknames was so important too? Informality in the army and afterwards in society may lead "underlings" to challenge authority -- and to challenge ingrained ideas that may bear close examination or, possibly, eradication, explain Singer and Senor.

The authors magnificently and amusingly describe the extraordinary contribution of the Israeli military culture, which not only allows but relies on critique, including from the lower ranks. The culture of savaging theories, plans and programs is deeply ingrained in the Israeli army, where inquiries have also been known to be held in the middle of war, rather than only at its end (or never ), in order to better the result. When the demobbed soldiers move on into civilian life, explain the authors, they take with them that heightened sense of responsibility and right -- nay, duty -- to analyze and criticize, which they learned (of all places ) in the army.

The army is also described at length as a font of technological excellence because of the training suitable soldiers receive, in exchange for extended terms of service. Singer and Senor talk at length about the elite intelligence unit 8200, whose graduates have access to their own jobs portal on the Internet where they can network and look for work, and Talpiot, a unit in which training is so extensive that if you join, you have to stay in the army for nine years.

The hypercritical pattern of behavior continues during higher education and in the business world. The authors see that independence of mind as crucial to Israel's lively entrepreneurial scene. No kowtowing to the alpha echelon for Israel's newly minted engineers: They think, they suggest and they expect somebody to listen when they have something to say. That is a key difference from the rigid stratified hierarchies of Western and Asian armies and corporations, which train young minds to courteously heed and obey, not to buck the traditional mindset and assumptions.

That start-up flopped. Next!

No less important than brilliance and chutzpah is the Israeli ability not to shrug off failure but to accept it, learn from its lessons and try, try again. Whereas failure, whether in the military or of a start-up, may be perceived as shameful in other societies, not so in Israel: It is perceived as a learning experience from which lessons are to be drawn for the next time. "So long as the risk was taken intelligently, and not recklessly, there is something to be learned," Senor and Singer sum up, noting a Harvard study that found a higher success rate for failed entrepreneurs who try again than among first-time entrepreneurs.

One is left with the astonishing suspicion that Israel "did it" through a fortuitous combination of disorganization, unwavering self-importance (for which the country's irrepressible entrepreneurs can presumably thank doting Jewish parents who were unable to see any flaws in their little geniuses ), extraordinary military culture, and, yes, education, education, education. You can't get away with sinking your fangs into the ankles of Intel's top brass and hanging on grimly, unless you have something extraordinarily intelligent to say when you finally unlock your jaws.

The book is a must for anybody wanting a deeper understanding of Israeli innovation, though some of its logical leaps seem speculative, such as the suggestion that the national penchant for traveling the world has been a driver of Israel's advances in telecommunications. One has to suspect exaggeration in statements such as, "it is impossible for major technology companies to ignore Israel, and most haven't." Most? Lots, maybe, but most? That reads more like propaganda than an objective study, which is a shame. As American businessman Jon Medved observes on page 65, if every product with Israeli technology were labeled "Israel inside," almost every gadget people touch would be marked -- "from computers, to cell phones, to medical devices and miracle drugs, to Internet-based social networks, to cutting-edge sources of clean energy, to the food we eat, to the registers in the supermarkets in which we shop." That is a naked truth that is unhappily rendered suspect by the patriotism that taints the writing here and there. A jingoistic statement may be perfectly true, yet irritate to the point of being rejected because of style.

Indeed, the writing in "Start-up Nation" is uneven, sometimes even distracting, and stereotypical generalizations abound -- "Israelis will unabashedly ask people they barely know how old they are or how much their apartment or car costs." "One of the questions asked in every job interview is, Where did you serve in the army?" they quote. That just isn't so any more. Or, "What is said about Jews -- two Jews, three opinions -- is certainly true of Israelis," they write -- which isn't even a quote, it's just coyly waving to the audience of appreciative Jews. But shouldn't this book set its sights on another audience entirely -- the rest of the world, which may be a hair less enamored of Jewish/Israeli cuteness?

Singer et Senor keep their audience riveted with fly-on-the-wall anecdotes that time and again demonstrate how truly extraordinary the Israeli story is. Google inaugurated an R&D center in Haifa -- ten weeks after missiles peppered the city in the Second Lebanon War. That is Israel in the third millennium, as beautifully demonstrated by the two authors: The world's leader in search technology inaugurated a lab snugly within the missile footprint of Hezbollah forces in Lebanon before the dust of the last war had even settled.

The final chapter, "Threats to the Economic Miracle" (again that word "miracle": They. Don't. Exist. ), helps balance a cheerleading tone to which the book tends, though parts of the chapter are already passe. References to the global economic crisis are inevitably out of date the moment they're printed, which is a problem for the news media, let alone a book. The same goes for job losses in the technology sector. More interesting is the discussion of fertility rates among the Haredi community and what that could mean for Israel as a whole down the road, not to mention the description of the unique problems faced by Israeli Arabs as they try to fit into the workforce without having the benefits -- contacts and training -- of army service.

Apropos of military tales, one is left wondering at the fate of the female Israeli sergeant kidnapped by the enemy in 1974. Okay, the point of that anecdote wasn't about her capture. It was about the enormous amount of secret information to which she was privy despite her relatively lowly rank -- and to find out how that contributed to Israeli entrepreneurship, read the book. But what did happen to her? We never find out.

Ruth Schuster is senior business editor for Haaretz-TheMarker.Haaretz BooksNovember 2009