Israel, for long a high-tech global innovation centre in defence, is now also home to an increasingly dynamic civilian tech complex, in which innovative Israeli start-ups apply the latest in military technology to groundbreaking applications in medicine or biotech. An illustrative example is the ingestible “pill camera”, which uses miniaturized sensing systems from jet fighters to beam photographic images of a patient’s intestine, obviating the need for diagnostic surgery. Israel’s innovators are, in fact, characterized by this inventive mixing of unrelated technologies, which the tech world has christened “mashups”.
Much of this innovation is being driven by young entrepreneurs, who have served time together in the highly competitive, technologically elite units of the Israeli army. Here, they learn the technology, leadership and management skills so essential to entrepreneurship.
In fact, with 3,850 tech start-ups for a population of 7.1 million, Israel today has the highest per capita concentration of tech start-ups globally, and attracts the world’s highest per capita concentration of venture capital, says a just published study of Israel’s tech boom. In Start-Up Nation: The Story of Israel’s Economic Miracle, Dan Senor and Saul Singer calculate that Israel’s venture capital inflow of $250 per head is higher than the US’ $100 and India’s $0.75. Israel’s civilian research and development (R&D) expenditure of 4.5% of gross domestic product is also the highest globally, and far ahead of India’s 0.9%.
Israel’s tech success offers India some pointers on how to build a national R&D culture, move further up the global R&D value chain, and generalize the benefits of opening defence to private investment.
The study shows that India and Israel have walked almost identical paths in converting themselves from “a sleepy backwater into a leading centre of global innovation”. In both countries, systematic public sector investment built strong local science and engineering capability; US-based expatriates persuaded multinational companies to let them start global R&D centres at home, and an influential tech and financial diaspora continues to build deep links with both Silicon Valley and Wall Street. Financial liberalization has also enabled global capital inflows for the first time.
But, in Israel, the government strategically supported the tech start-up sector since the 1970s. Starting 1976, it partnered with the US government to match-make Israeli innovators with US firms interested in commercializing and marketing the resulting products globally, and underwrote all costs. This partnership also played a key role in building the strong Israeli presence on US stock exchanges. Israel has 63 firms on the Nasdaq exchange, far higher than any country but the US. In the 1990s, it established a national network of technology incubators, and strategically built an Israeli venture capital industry by seeding 10 tech-focused venture capital funds, which today manage $3 billion in capital and have attracted 240 local and international competitors to start operations in Israel. India’s tech and venture capital industries, on the contrary, have been built entirely by its private sector and diaspora, often battling populist policies that approach high-tech as an “elite” activity.
But, according to the book, it is the Israeli army’s non-hierarchical structure that is the vital spark behind the country’s current “mashup” boom.
Few in the land of Buddha and Gandhi would advocate military service as the path to greater global technological competitiveness. But Israel’s example poses a major question: How might we build an R&D culture that drives “mashup” innovations and gives centre stage to our young?
Premila Nazareth Satyanand has worked with the United Nations, the Economist Intelligence Unit and the World Bank Group. Comment at firstname.lastname@example.org