Israelis are supposed to be smart. We’ve won more than our fair share of Nobel Prizes and are home to a disproportionate number of top-ranked universities. Startup Nation is all about smarts.
Unfortunately, the only concrete evidence of Israeli mental skills that exists shows exactly the opposite – namely that, compared to people in other developed countries, we lack basic literacy, numeracy and problem-solving skills.
The issue of what constitutes intelligence is riddled with controversy, and even if you accept IQ as a reasonable measure, there are no international comparisons.
But organizations like the Organization for Economic Cooperation and Development routinely measure the skills of children, teens and adults for their abilities in fundamental, job-related skills.
They paint a distressing picture of Israeli mediocrity.
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In the OECD’s latest PISA exam, conducted in 2015, Israeli 15-year-olds performed worse than their peers in most other countries surveyed. In science, their score was 467 versus an OECD average of 493. In reading it was 479 versus 493, and in math 470 versus 490. The top countries scored 535 and more.
Israeli adults perform badly as well. In the OECD’s PIAAC survey of people ages 16-65, only 8.5% of Israelis scored at the highest two of five levels for literacy, versus 10.6% on average for member countries. On numeracy, only 10.3% of Israelis scored in levels 4 and 5, versus an OECD average of 11.2%. Nearly a third of Israelis don’t have the skills to solve problems in what the survey calls a “technology-rich environmental” that requires basic computer skills. Across the OECD, those lacking the skills amounted to just 28.9% of the working-age population.
The fact is that Israel’s Nobel Prizes and paradigm-breaking startups are the work of an elite minority. Israeli may be known as Startup Nation, but only about 8% of the Israeli labor force is employed in it.
The rest of the economy is characterized by everything Startup Nation is not. It’s uncompetitive in global markets and technologically lagging. Labor productivity, which to a large degree depends on the skill levels of workers, is low except in the tech sector and in a few other export-oriented industries.
The reason Israelis perform so poorly in above-the-neck functions has a lot to do with the schools, which suffer low levels of discipline, large classes, poorly designed curricula and weak administration.
It’s hard to recruit the best teachers under such circumstances, and the profession doesn’t enjoy much prestige. The best and the brightest students survive the system (the army contributes valuable training, too).
The great majority don’t.
Not surprisingly, the Israelis with the weakest skills are Arabs and the ultra-Orthodox. Schools in the Arab sector are the worst in the country, while the Haredim don’t even trouble to teach basic skills at all – at least not boys, who ideally won’t be pursuing higher education or a career. Contrary to the Haredi myth, studying Talmud doesn’t cultivate a mental acuity that might make picking up algebra or fluent English later in life easy.
All of this has painful implications for the Israeli economy, and they will grow more painful as time goes on. Human capital is about the only resource Israel has – and, as it turns out, we don’t have a lot of it and are doing very little to rectify the situation.
A report by the Taub Center for Social Studies released this week correctly asks “Can the Israeli Startup Nation Continue to Grow?” The answer it offers is no, for now at least.
Taking the PIAAC data, researcher Gilad Brand found that the majority (60%) of the elite of Israelis are already employed in high-tech. The skills gap between them and the rest of Israel is huge, so the industry won’t be able to recruit people not already working in tech to solve its labor shortage.
Brand estimates that just 4% of Israel’s working-age population not already employed in tech could potentially join the industry. Among the ultra-Orthodox, the rate is 3% and among Israeli Arabs just 0.5%.
In reality, the pool is even smaller, because a lot of those people are working in high-paid, rewarding jobs and have no incentive to change careers.
Brand acknowledges that the skills of Haredi and Israeli Arabs are improving, but in the short term Startup Nation faces a hard ceiling on the number of engineers it can employ.
There is already evidence that the labor constraint is causing Startup Nation to shrink. Figures from Startup Nation Central show that the number of startups formed in Israel has been shrinking since 2014, when they numbered more than 1,000, to just 700 last year. The number of startups closing every year has nearly doubled, so the net number of new startups has fallen by nearly two-thirds.
Startup Nation Central says the decline reflects the growing maturity of the Israeli tech sector: Entrepreneurs are no longer selling their businesses quickly, but staying in for the long run. Maybe, but more likely the decline reflects the inability to staff a new startup with quality people. There aren’t enough top-flight engineers to go around.
The problem isn’t just Startup Nation’s. If Israel is going to ensure for itself sustainable economic growth and reduce its high levels of poverty and income inequality, it has to become a home for globally competitive non-tech industries, too.
That requires people who might not be able to design a semiconductor, but know how to market a product or manage a logistics center. Right now, we lack those too.