If Israel Was a Startup, Would You Buy Shares?

While the stocks of 'Sweden' or 'China' might seem more appealing, on its 68th birthday the State of Israel abounds with an enormous potential for improvement.

Sami Peretz
Sami Peretz
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The Israeli flag hangs outside the New York Stock Exchange on Wall Street in New York December 1, 2014.
The Israeli flag hangs outside the New York Stock Exchange on Wall Street in New York December 1, 2014. Current market conditions are not attracting Israeli companies to there.Credit: Reuters
Sami Peretz
Sami Peretz

The most successful startup established in the Startup Nation is the State of Israel itself. And since we have no intention of selling, a conceptual shakeup is required.

If Israel were a working man it would have retired last year, on its 67th birthday. While there were some who expected it to leave the stage and voluntarily retire a long time ago, with some still wishing for this to happen, Israel is not a working person. 

If anything, Israel is like a company. One could debate whether it’s like a limited liability company or like a company for the benefit of the public. Perhaps it’s a startup? A holding company for several subsidiary companies? It seems that Israel has elements of all of the above.

Israel began as a startup in every sense of the word. It was backed by an idea for an exciting venture, bordering on the delusional. There were a few founders who came here penniless, establishing a society that became a lodestone for dreamers, emigrants, refugees and subsequent generations. 

On its path, this startup covered all the necessary steps of crystallizing a concept, recruiting employees willing to work from morning till night, raising money from foreign investors (German reparations, America aid), going through failures and crises as well as enjoying achievements in economics, on the battlefield, in agriculture and research. 

Israel even did some outsourcing for operations that aren’t part of its core business activities. It handed over caretaking to Filipinos, field labor to Thais and construction to Romanian and Chinese laborers. All of this was done in order to focus on what it can do itself- high-tech, defense industries, finances and commerce, along with no small amount of consulting, legal work, accounting, tying money to politics and “hot air” businesses.

What’s changed in 68 years?

This is usually the stage at which startups exit. They sell the venture at an exorbitant price and move on. Otherwise they turn into mature companies that require maintenance and managing in an ever-changing and challenging environment. This is exactly the phase Israel has been in for the last two decades. If one looks at the numbers, the overall parameters aren’t bad at all.

The per capita income is adequate, the rate of unemployment is low, the number of hostility-related casualties is low compared to other years, budget management shows fiscal responsibility. It has a few good high-tech products in the defense industries, in agriculture and in chemicals and even a promising new product in the form of natural gas. However, reading the explanatory notes to the financial reports reveals the problems, which are plentiful. 

Poverty rates in Israel are the highest among OECD countries (only Mexico trails behind), and socio-economic gaps are very high in comparison to Western countries.

That isn’t all of it: productivity is low, the cost of living is high and only a quarter of the workforce enjoys employment stability. Moreover, there is too little participation in the workforce by ultra-orthodox men and Arab women, not to mention racism and excitability with too short a fuse, in a country that’s a little crazy, focusing for days on things someone has said rather than on things he or she has done.

That raises the question of whether we’d buy shares in such an entity, “the State of Israel”. Perhaps we’d prefer the stocks of “Sweden”, “Holland” or “China”? Before rushing off to purchase the latter, it’s important to note an important feature of the capital market. Good, high-quality companies are usually traded at full price, reflecting their situation. In contrast, lower quality companies are traded at lower prices, but some of these conceal a potential for improvement. There one can buy for a low price, invest in improvements and enjoy the subsequent increase in value. The State of Israel abounds with an enormous potential for improvement.

Israel has good human capital but also many people who’ve been left behind, whose situation can be improved. It has low unemployment but also low productivity, crying out for innovation and investment that will enable an increase in wages. The cost of living is high, but in many places in the business and public sectors there is room for more efficiency and competition that will bring down the cost of living. Public services are partly of high quality and partly lagging behind, impairing the quality of life here. There are groups that aren’t fully exploiting their potential for a variety of reasons and due to numerous political arrangements, as well as discrimination. If we succeed in incorporating these people our productivity will soar. Israel is very heterogeneous, with large cultural and economic differences. If we knew how to enjoy these differences we’d benefit from a multicultural society that extracts the good aspects of all worlds.

All of this requires something different in the spirit of initiative and startup mentality that prevailed in the country’s early years, and definitely different than the days in which the concept was only an idea in the mind of its visionary, born in Budapest 156 years ago.

Israel needs fewer initiatives and more management, fewer dreams and more connectedness to reality. Less abstract notions and more links to measurable goals and numbers. Israel’s potential within the vision of a “new Middle East” has been suspended – who knows for how long – but even without it, the country can travel a long road while prospering in all aspects. 

Israel is no longer a startup venture, but rather a mature company that has to be managed and maintained in order to keep its relative advantages while addressing its shortcomings. It is not a limited-guarantee company. It doesn’t need to be dressed up and prepared for a sale. It’s not on the shelf. It’s more like a company that benefits its public, with a goal of taking care of all its members while providing good services in education, health, welfare, science and culture. It can and must do so. Even though it’s reached the age of 68, it can’t retire. It only has to see to it that its citizens can do so with dignity.