JIM GLASSMAN:
Welcome to Ideas in Action, a television series about ideas and their consequences.  I'm Jim Glassman.  This week, Israel's emergence as a high tech powerhouse.  The modern state of Israel is only 60 years old.  Its population is smaller than some US states.

Yet, this tiny nation has achieved phenomenal success developing advanced technologies, attracting venture capitalists from around the world, and the attention of America's high tech giants.  Despite the global downturn, this year Israel's economy is projected to grow three and a half percent.

What is it about Israeli culture and economy that is driving this growth, and what can the US learn from it?  Joining me to explore this topic, Dan Senor, coauthor of Startup Nation:  The Story of Israel's Economic Miracle.  George Gilder, author of The Israel Test and founding fellow of the Discovery Institute, and Amit Shafrir, advisor to Israeli companies and a startup pioneer in Israel.  The topic this week, lessons from Israel's explosive high tech boom.  This is Ideas in Action.
(OPENING MUSIC)
ANNOUNCER:
Funding for Ideas in Action is provided by Investor's Business Daily.  Every stock market cycle is led by America's never-ending stream of innovative new companies and inventions.  Investor's Business Daily helps investors find these new leaders as they emerge.  More information is available at investors.com.
JIM GLASSMAN:
Israel has become a vibrant land of opportunity for high tech innovators.  New advances in telecommunications, healthcare, agriculture, and data management all originated from small Israeli startups that are attracting financial backing from America's industry leaders.

Per capita, Israel ranks first in the world in spending on research and development, and second in attracting venture capital funding.  Israel has more companies listed on NASDAQ than any other country aside from the US.  Its unique culture, highly educated population, and government policies that encourage risk taking are all contributing to Israel's success.  This week on Ideas in Action, what can the US learn from Israel's high tech explosion?  Dan, let's start with you.  You've written a book called Startup Nation.  What do you mean by that?
DAN SENOR:
Well, as a quantitative fact, Israel has the highest density of startups in the world.  There's something like a startup for every single-- what is it-- a startup for every 1,188 Israelis, last we checked.  Israel attracts more global venture capital, funding startups on a per capita basis than any country in the world, including the United States.

Two and a half times more than the United States.  Eighty times more than China.  It's a nation of immigrants.  Two out of every three Israelis is either an immigrant, a child of an immigrant, or a grandchild of an immigrant.  Over 70 nationalities represented.  And a nation of immigrants is a nation of entrepreneurs.

I mean, it-- it's just a very dynamic startup scene, with all these newcomers coming there and starting anew.  And then you have the whole notion of modern Israel.  The whole notion was almost a startup country.  I mean, it was the first time in history where a people went back to their ancient homeland to build a modern nation.  And everywhere they've gone about the country has this very entrepreneurial startup wave.  Start up the modern language, infrastructure, all on a very short fuse.
JIM GLASSMAN:
George, what do you think some of the reasons behind-- Israel's economic boom, this kind of entrepreneurial boom that Dan is talking about, where-- where do they come from?
GEORGE GILDER:
It's an old story.  I mean-- throughout the 20th century, countries where Jews had been concentrated have prospered.  All the science of the 20th century was dominated by Jews.  And-- I think Israel distills the genius of the Jews.
JIM GLASSMAN:
I want to get to Amit, an actual Israeli entrepreneur in a second.  But-- in reading your book-- Dan-- I think you might disagree with some of-- 
DAN SENOR:
Respectfully.  (LAUGH) 
JIM GLASSMAN:
--wha-- what George said, because you certainly don't put a lot of emphasis on this cultural aspect?
DAN SENOR:
Right.  There's this debate about, you know, are Jews smart?  That's beyond the scope of our book.  George's-- George's book does get into that.  What we say in the book, if-- if you submit that Jews are smart-- Jews certainly don't have, the Jewish people don't have a monopoly on being smart.

There are plenty of smart people around the world.  The problem in many of those places, you go to a place like Singapore.  They're a smart people.  Singapore-- eight Singaporean students rank the highest in the world in math in science.  In Finland, there are smart people.

The problem in those countries, when you talk to policymakers and business leaders in those countries, the problem is not a lack of smart people.  It's a lack of entrepreneurs.  Not a real tolerance for risk taking.  Not a real tolerance for failure.

I mean, try filing for bankruptcy in some of those, in countries in parts of Asia, and certainly in the Arab Muslim world.  The-- parts of the Arab Muslim world could wind you up in jail.  Not a lot of tolerance for risk.  So, what's-- what we argue is it-- unique about Israel is not brainpower.

What is unique about Israel is this methodology they've developed for training their young-- young people at a very young age, how to be entrepreneurial, how to be leaders, how to be managers, which is very healthy for the startup scene.
JIM GLASSMAN:
Amit, have you seen a change in Israel in the time that you've been there, as far as entrepreneurship is concerned?
AMIT SHAFRIR:
Absolutely.  I think over the last-- two to three decades, there's been a major shift in Israel-- culture, in terms of its tolerance towards risk taking, its tolerance towards-- failure.  Failure is not a bad thing in-- in, I would say in last 20, 25 years.

Before, I'm not that old that I would remember, but I've read a lot.  That failure was something you were afraid of.  Today-- people who come out of the army are used to taking risks.  Are used to-- to an environment that will applaud them for taking those risks.

And of course, now that we have-- open markets in Israel and stuff like that, you get rewarded financially, in other ways, for if you're successful.  Now, of course, the percentage of success is-- is still relatively low.  I think it's still one per-- one out-- one out of a 100 startups make it big.

But that doesn't deter Israelis-- from trying.  And I think the-- the things that I've seen over the past-- 20 years is that where it started out as a-- measure of necessity.  So, Israel is a poor country, as opposed to, at least at the time, the US.

At the time, in the-- in the '80s, when someone needed more storage space, if they were in the US, they went out and bought it, 'cause the US is rich.  In Israel, there was no money in the army, so someone had to come up with a compression algorithm, which is then used all over the world.  So, the necessity in the not having-- enough resources and funds caused that to happen.  Im-- you know, you know, the way we're going here, that may happen here as well-- 
JIM GLASSMAN:
Well, actually, th-- that's what I was going to ask about.  When you talk about-- culture-- so you're saying it's a combination of culture changing and policies, kind of enabling the-- the success through that changing culture.  But let me just ask you about the United States.  Do you see the United States in any way kind of-- at-- at a deficiency, compared to Israel, as far as its culture or its policies are concerned?
AMIT SHAFRIR:
Well, you know, United States is a huge country.  It's not homogenous.  There are certain pockets in the US which are-- more conducive towards an environment that is similar to Israel, in terms of its-- tolerance-- to-- to failure.  You know, if you look at the Silicon Valley-- there-- there are places where-- where-- fostering innovation and entrepreneurship is-- is imbedded in the area.

Overall, in the-- in the US, I don't think that the environment is such where-- I-- you know, I don't want to single out specific states or specific cities-- but you don't see a lot, compared to the c-- you know, the 310 million people in the States, and the-- the amount of resources available to American--
JIM GLASSMAN:
Do-- 
(OVERTALK)
AMIT SHAFRIR:
--don't think you see that.
JIM GLASSMAN:
--you agree with that, George?
GEORGE GILDER:
Well, I think that-- Silicon Valley is like Israel, and preceded Israel in being incredibly creative and thrives like Israel on immigration.  And-- as-- still leads-- the world in innovation, although in recent, the last couple years, they've become infatuated with this green model that I think is gonna fail.

But-- beyond that-- Silicon Valley still remains the model that Israel has followed.

And now Israel is actually cultivating a lot of the innovation that is waning in Silicon Valley at the moment.  So, a great asset for the United States today is Israel's-- grabbing of the torch from Silicon Valley, as the world's leading spearhead of new technology innovation.
JIM GLASSMAN:
D-- Dan, Amit mentioned-- the military.  And that's an important part of your book.  How-- how does the military culture, or jus-- just the draft, or how does the military in Israel encourage entrepreneurship.  That's kind of hard to understand, I think.
DAN SENOR:
Every single, almost every single Israeli at age 18 goes to serve in the military.  Males for three years, females for two years unless they go onto officer training, or go to serve in some of the elite units.  So, it means they do this before university.  So, what it means is almost every single Israeli gets a crucible leadership experience at a very young age.

They learn what it means to have to lead, to have lives on the line.  Not only their own lives, but other people's lives.  What it means to have to manage millions of dollars in equipment and assets.  What it means to have to make decisions every single day with imperfect information.  Lots of ambiguity.  

You talk to the leaders of Google and Cisco and Intel and EBay who we interviewed for our book, and they say you take the average Israeli 25 year old, having gone through that experience.  They go through that experience, then they go to university at age 22, 23.  So, they're 25 years old and they've come out of those two experiences.  They get more out of the university experience because they go at a much more mature level, because they've gone through this military experience.  Much more sense of perspective.

The combination-- you take that average Israeli 25 year old.  Put him or her up against their peers almost anywhere in the world, and any day of the week, they said they'd take the Israeli, simply because it-- most 25 year olds don't have that combination of experiences, at such a young age.
JIM GLASSMAN:
So, you think that's a good idea for the United States-- 
DAN SENOR:
Well-- 
JIM GLASSMAN:
--To institute a draft-- 
(OVERTALK)
DAN SENOR:
No.  No.  I don't advocate the draft.  But I do think there are many students who go waste their time in college immediately after high school, and there's benefit in terms of other leadership training experiences they could have after high school, before they go into university, one.  Two, I think the other great prescription here for the United States is for business leaders to become literate about military resumes.

This is a huge problem here.  Any single Israeli entrepreneur going to get VC capital, raise VC capital in Israel, or going to find a job, the first question they're asked is not what university they went to, and not was their last job.  What unit did you serve in, in the military?

We have stories in our book where you have young officers from the US Army returning from Iraq and Afghanistan, and they apply for a job at major companies, and the corporate recruiter will say, will be listening as this person describes their experiences as security czar, a reconstruction czar, a tribal negotiator in places like Fallujah.

They got these incredible interdisciplinary skills and improvisational skills.  And the corporate recruiter listens to all this.  And that the end, says, "Well, that's all very interesting.  But have-- have you ever had a real job?"  (LAUGH) 
JIM GLASSMAN:
Yeah, yeah-- 
(OVERTALK)
DAN SENOR:
And it's-- it's-- it's sad.  And-- and this-- we hear this over and over and over.  And so, we think the challenge for America's business leaders is to get literate, particularly over the next few years, when we will be reintegrating into our economy tens of thousands of people returning from Iraq and Afghanistan, many of whom have had great experience that is transferable to a business context.
AMIT SHAFRIR:
Yeah, if I may-- may add, I think-- Dan's absolutely right.  Not only is every, virtually every Israeli-- much more mature when they get to-- to college and get to the-- the market-- there are specific units within the Israeli Army that pretty much build people with the DNA that is suitable towards-- towards high tech entrepreneur-- take out very smart people, whether it's because they're Jewish or not.  Whatever it is, very smart people.

Train them for many years to come up-- with, you know, go into a room somewhere and figure out in-- ingenious ways of fighting terrorists-- or other things.  And you have to think out of the box.  It's very hard to teach someone to think out of the box.

We always s-- say that.  But to teach someone in a methodical way is hard.  And-- and methods have been developed, I think in der-- in some units in the Israeli Army that allow for that to happen.  Now, as Dan said, here, I've been in the States for the last 15 years.  When I see a resume of someone coming in, it-- I always miss th-- because even those who were in the military very often kind of put it as a last l-- line on the resume.  Kind of behind-- 
DAN SENOR: 
Oh, yeah.
AMIT SHAFRIR:
--Everything else.  And to me, that's important, because I-- I've seen the value.  I know what someone who has done-- whether they were infantry or whether they were-- high tech, there's a lot of-- you know, responsibility and things that you learn-- to think fast and to-- to do things in a certain way that I see as an asset for someone that I would be hiring.
JIM GLASSMAN:
George--- We'll get George into this conversation.  Do you, do you agree that this military experience is important-- 
GEORGE GILDER:
I think the key-- 
JIM GLASSMAN:
--or is there something else?
GEORGE GILDER:
--the key to the military experience is their intense meritocracy.  The-- the Talpiot program-- g-- collects just 100 leading Israeli students every year.  And those 100 build up to thousands, over decades.  And they pu-- are the absolutely preeminent-- brilliant students in Israel.

And they get channeled immediately into very practical life and death problems.  And they get confidence in solving life and death problems.  But-- a similar meritocratic -- system in India, where they have only a very tiny proportion of Indians get to go to their IITs, their technical universities.

And-- it's the intense meritocracy that produces absolutely the best students, and then applies them to absolutely practical and demanding fields, that has made the Indians world leaders in algorithms, just as the Israelis are world leaders in algorithms.  And so-- so I think that-- the key is focusing on that small minority on which the world always depends for progress.

And the real issue in the world today is whether you resent this-- successful mi-- d-- minority.  You think this tiny group of geniuses somehow diminishes you with their exceptional success or whether you see genius as-- an example, an inspiration, opening up new horizons for you and everyone else.
(OVERTALK)
GEORGE GILDER:
And that's the Israel test-- 
JIM GLASSMAN:
And-- and I think there's a certain irony there, because Israel-- was founded as s-- as a socialist state.  It-- it has institutions such as the-- the kibbutz.
DAN SENOR:
There was a big debate within the founding generation, about whether Israel should be a socialist or Marxist state or not, and th-- different parties broke down in different ways on it.  Ben-Gurion-- while he used a lot of Marxist or neo-Marxist rhetoric, is-- Israel's George Washington, Ben-Gurion, he was most focused on nation building.

It was about building the country.  And if in certain parts of the country, he was convinced that private entrepreneurs could be helpful in building, he was all about private entrepreneurs.  And if he was convinced in other parts of the country that he needed (LAUGH) socialist rhetoric to motivate people, he d-- employed socialist rhetoric.

He was, it was a, it was a nation building exercise that got out of control.  It was a nation building exercise, like many nation building exercises, like what we've seen in Iraq, where, you know, after the regime falls, yo-- it's-- you could argue that it's a-- very centralized nation building exercise.

That was going on in Israel.  Then it-- it got out of control.  The government never got out of the business of managing the economy, and it-- it hit a road.  It hit hyperinflation.  The economy went into a real meltdown in the '70s, between-- well, between really the mid-'70s-- 
(OVERTALK)
DAN SENOR:
--and the mid-'80s-- 
GEORGE GILDER:
--Eighties.
DAN SENOR:
Yeah-- 
GEORGE GILDER:
Eighties.
AMIT SHAFRIR:
--eighty-five-- 
(OVERTALK)
DAN SENOR:
Yeah.  Eighty-fi-- and then, and then you saw the-- the economic reforms coming into place, because Israel had no choice.
JIM GLASSMAN:
What-- what are some of the-- the-- the policies, the actual economic reforms that Dan is talking about, that have enabled-- Israelis to do as well as they have as entrepreneurs?
AMIT SHAFRIR:
Well-- one thing was-- 
(OVERTALK)
JIM GLASSMAN:
Taxes, or-- 
AMIT SHAFRIR:
Lower taxation.  You know, it may sound trivial, but lower ta-- it-- it-- when I left Israel 15 years ago, I think tax brackets were about 61 percent.  I'm not sure what they are now, but they're significantly lower.  So, that actually fosters a-- an environment that-- small businesses and-- by-- small businesses, it's two, three people.  Mu-- a lot of these startups that I deal with are very small businesses.

But they know they have something to work for, and they know that there is a good b-- if they're successful, there's a good reward. So, taxation I think is-- is crucial.  There's lesser and lesser government intervention, in terms of what you can and you cannot do, in-- when you are-- specifically in the area that I'm familiar with, which is, which is high tech and internet and regulation, stuff like that.

You're able to do much more than you could before.  Also, the other thing that we keep, you shouldn't forget is the fact that-- the internet is around allows people in Israel to be global without leaving their home, which, you know, in terms of-- of, there's no government policies that can govern that.  And all of a sudden, you don't have to live in New York or San Francisco to be a global business.

So, that helps a-- as well, not-- not just the-- the-- the lesser intervention.  What also has happened over the years, I think from the '70s until today, is that there is-- both-- local government and central government assistance towards smaller companies.

They're a s-- it-- specifically in certain areas in the northern and south, where they want to get some-- some of that brain power to go there, there is-- some subsidies that are-- or some grants that are given towards high tech-- which help a lot.  There's Israeli policy towards big companies like Intel, where the company, the-- the government-- wants investment in Israel, and in-- a lot of time, rules-- and laws are made specifically to allow-- that to happen.
JIM GLASSMAN:
Are-- are Arabs in, Israeli Arabs, or Arabs-- on the West Bank, are they sharing in any of this?
DAN SENOR:
You know, we have a-- chapter in our book where-- it's called "Threats to the Economic Miracle," where we look at what could go wrong and what is going on.  And one of the things that Prime Minister Netanyahu focused on is the low participation rates in the labor force among Israeli Arabs.

On-- two demographics that have low participation rates.  That's one of 'em.  Now, one of the reasons we think they have low participation rates is because they don't serve in the military, so they don't develop these business networks in the military that become lifelong networks, and they don't get the leadership training.

It's something that the Prime Minister, Prime Minister Netanyahu is quite focused on, because he thinks if they can get those participation rates up-- among the-- among the Israeli Arabs, it could do a lot for the Israeli economy.  Now, I recently met with Salam Fayyad, the Palestinian Prime Mister.

And he talked about in Ramallah, there's actually some high tech activity going on.  There are some startups going on.  The problems is because of the tensions between the Israelis and the Palestinians, the real loser in this situation is the Palestinian economy, beco-- among others, because there-- they could really benefit from joint ventures with Israeli companies.

They could really benefit from having access to the commercialize-- many of them-- many of these Palestinians study in Israeli universities.  They could really benefit from the commercialization programs in the Israeli universities.  They've-- commercial-- commer-- technology commercialization programs.  A couple of Palestinians we interviewed said they are so terrified of being associated with some of these commercialization programs that it really inhibits their capacity to get their-- 
(OVERTALK)
DAN SENOR:
--Company to take off.
JIM GLASSMAN:
--George.  I want to get back to this question of h-- of is there something that the United States can learn from the Israeli experience?  And George, you were talking about how it seems like Silicon Valley even is beginning to slip.  This kind of can do attitude of Americans.

I mean, is this just inevitable?  That is to say a-- when you get to a certain level of, I don't know, comfort or wealth, that you don't have the entrepreneurial drive?  Or is there something we can learn from the Israelis that would reignite entrepreneurship in the United States?
GEORGE GILDER:
Elect a Netanyahu in the United States.  You know, Netanyahu is-- a real recrudescence of Ronald Reagan.  He-- he studied at MIT and-- worked at the Boston Consulting Group when they were laying the foundations of supply side economics.

He's-- he's the world's best economic leader.  And-- it-- yo-- you shouldn't underestimate-- incredible feat of virtuosity he achieved in 2005.  He-- he moved the-- ownership of the major companies in Israel from 60 percent government owned to 20 percent government owned.

He al-- enabled a whole financial sector to emerge.  Those banks were pretty-- nebbish banks-- all those-- (LAUGH) through those years.  I mean, he d-- he really did-- transform the Israeli economy.  And that's why I think the future of Israel is-- better than its past.  I think-- Israel's dominance in the Middle East is gonna steadily increase.  It just-- in a takeoff phase now.  Startup to takeoff.  And-- 
(OVERTALK)
DAN SENOR:
Takeoff nation.
JIM GLASSMAN:
--Are there-- (LAUGH) 
(OVERTALK)
JIM GLASSMAN:
--Before we get-- 
DAN SENOR:
The sequel.
AMIT SHAFRIR:
Sequel-- 
(OVERTALK)
JIM GLASSMAN:
--before we get too carried away with this, are there any-- cons?  Is there any sort of downside to the Israeli entrepreneurial model?
DAN SENOR:
I would say there are some, there are some potential bumps in the road.  I mean, the labor participation rates is one that-- that-- we spoke about earlier.  People talk about brain drain.  So, now all these Israelis are becoming incredibly talented-- 
JIM GLASSMAN:
Here's Amit.  He's in the United States.
DAN SENOR:
That's right.  We're writing books about Israel.  People are gonna start learning about it.  And-- and they're going to start trying to not just mo-- open their companies in Israel, but draw talent out of Israel.  The counter to that, though, is we've seen brain drain to be less of a problem.

And what's more dominant is brain circulation.  People like Dov Fuhrman, who started the Intel facility in Israel in the '70s, 'cause is-- Intel was looking for engineers.  Dov Fuhrman had left Israel, went to get his PhD in Engineering.  And oh, by the way, when he was getting his PhD, he got to know a couple guys named Andy Grove and Gordon Moore, and oh, by the way, they were gonna go start this company called Intel.

And then, when they had a shortage of engineers, he said, "Well, I know where we can find some engineers."  And now he runs, or he ran, he set up the facility in Israel that today exports over a billion dollars in chips outside of Israel.  Cisco.  Michael La-- Laor left Israel to go work at Cisco.

He wanted to move back to ci-- to Israel.  Cisco didn't want to lose him, so they said, "All right.  We'll open up Cisco Israel."  Cisco has now bought nine companies in Israel.  They're looking to buy more.  So, that's the good news.  Yes, people leave, but a lot of people leave and come back, with their networks, and with a lot of knowledge.  I think the biggest threat to Israel's economy is the potential of a nuclear Iran.  I think that-- that Israel has overcome some unbelievable threats over its, over its existence, throughout its history, that have not discouraged investors from coming there.

I mean, you look up, until rece-- the second Lebanon War, rockets were landing right near factories that were in negotiation to be purchased.  Companies, by-- one by Warren Buffett.  Deals still went through, 'cause they thought the Israelis would be able to stick it out and be resilient.

But the moment Israel's facing an existential threat, the nuclear bomb pointed at it, with rhet-- genocidal rhetoric being articulated by the leader of the country that has that bomb, that could be a game changer for all these people who are putting capital into Israel.
GEORGE GILDER:
That's why I think that-- America's foreign policy depends on explicitly and completely committing itself to the defense of Israel.  Israel is an extension of the US economy-- 
(OVERTALK)
JIM GLASSMAN:
But don't you think-- George, that the United States has in fact explicitly said that it will defend Israel?  And maybe that's part of the reason that Israel has done as well as it has?
GEORGE GILDER:
Well, I think that's important, and it's gotta continue.  I mean, 96 percent of Israelis are skeptical of the commitment of the existing administration to Israel.  And this is a serious problem, because when we convey uncertainty that all the Israelis see, all the Arabs see it, too.

And that makes Israel more vulnerable, and that makes us more vulnerable.  So, I think nothing is more important for U-- US foreign policy, particularly in the Middle East-- is to banish all questions about-- the American commitment to-- this regime and Israel, and its continued participation in-- the world economy.
JIM GLASSMAN:
Last question, real quick, to Dan.  Is Israel the new land of opportunity or can the United States continue to claim that title?
DAN SENOR:
I think they both can-- claim the title.  Eric Schmidt from Google told us, he says, "To-- to this day, America still creates the best entrepreneurs in the world.  Period, full stop."  He says, "But after America, there's no doubt, Israel is th-- is the next best place for sort of the-- a-- factory of-- of young entrepreneurs."

S-- others would argue that it's a little more, you know, one is not ahead of the other.  It's all equal.  But I-- I-- I think, no, no, I think the US can continue to be this land of -- opportunity and entrepreneurship.

I think on the military side, as I said earlier, depe-- it could either be a huge burden or a huge opportunity for America, for America's economy, for business, as all these young leaders come back into our economy.  And-- and how we handle that will be a real test.
JIM GLASSMAN:
Important point.  Thank you, Dan.  Thank you, George.  Thank you, Amit.  And thank you for joining us.  For Ideas in Action, I'm Jim Glassman.  We'll see you next time.
(CLOSING MUSIC)
ANNOUNCER:
For more information, visit us at ideasinactiontv.com.  Funding for Ideas in Action is provided by Investor's Business Daily.  Every stock market cycle is led by America's never-ending stream of innovative new companies and inventions.  Investor's Business Daily helps investors find these new leaders as they emerge.  More information is available at investors.com.
(CONTINUED MUSIC)
ANNOUNCER:
This program is a production of Grace Creek Media, and the George W. Bush Institute, which are solely responsible for its content.
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