Stuart A. Gabriel is Director of the Ziman Center for Real Estate at UCLA and is Arden Realty Chair and Professor of Finance at UCLA Anderson School of Management introduces conversation with David Rosenberg, Economics Editor and Columnist for the Israeli newspaper Haartez (English edition).

Gabriel Gabriel: David comes to us today from Jerusalem and he is a very distinguished, very well known journalist in Israel. He's the economics editor of Haaretz which as many of you know is sometimes compared with the New York Times. Very important outlet in Israel and around the world. And in the three decades that he's been in Israel he's also been Jerusalem Bureau Chief for Bloomberg News and also the economics editor for the Jerusalem Post. He's been writing books in recent years in addition standard sort of newspaper journalism. He's written a book studying the tech sector in Israel. He wrote a book called Cloning Silicon Valley. He's just written a book called Israel's Technology Economy. It's a very interesting and readable book. I was reading it last night. He's going to talk some about this tonight. He's gonna talk both about the innovation and entrepreneurial and startup phenomenon in Israel, and he's going to put it in the context of what that means for the broader Israeli society. So I don't want to hint any further. But with no further ado, please welcome David Rosenberg. (applause)

David Rosenberg: Thanks very much. I was going to start my talk with the quote from all people Moshe Dayan - not somebody who we normally associate with high tech at all. And he said at some point, I think at the end of his life, 'That I set out to be a farmer and I think I'm a would have made quite a good farmer. Yet I spent most of my adult life as a soldier under arms.' Anybody who knows Moshe Dayan you know - famous for the eye patch and so forth, a swashbuckling soldier even by Israeli standards - it's kind of hard to imagine that he would have liked to have spent his life getting up every day in the morning and milking cows and pitching muck out of the stables and so forth. But the fact is I think he was expressing a very true sentiment. He was the son of a farmer so he knew what he was talking about. But more than that he was an expressing a Zionist ideal of his generation which was a good future Israeli ...should be a farmer. That was the ideal of the time. The fact that he became a soldier by profession was reality of the situation, going back to the beginning of Zionism which was that the Jews were arriving we're not very welcome. But what I think he did in talking about these one in aspiration, one in reality, in fact has some bearing on the Israeli high-tech sector, in as improbable as that may seem.

David: It's because on the one hand you know Zionism became inseparably intertwined with military - and military became important part of the high-tech industry. The second about this farming aspirations for what it says about early Zionism and whole Zionist Enterprise as we call it. The fact is, Zionism was a political movement but it was also as it was envisioned by its early founders, certainly the young people arrived at the turn of the century in the years up to World War One, as a part of a big socio-economic transformation of the Jews. It was a conscious activity not simply to build a Jewish state but to build a new Jewish Society and even to build a new Jewish man or woman as the case may be. And that expression was going to come through principally through agriculture.

David: What I guess I'm starting off by saying is that the you know high tech economy that is Israel today began in a very unlikely place. It began in the area of the world that was an economic backwater and was born underdeveloped for many, many decades. But more than that, you know it will develop you will say under the shadow of war. And I guess the bottom line at the end of it is..it's not clear how Israel became what we know now in today's startup nation. So how do we go about understanding this process and how these promising origins resulted in what we know now is one of the world's leading high-tech economies.

David: So the way I want to go about doing that is to kind of begin with a sketchy history of Israel and Zionism. One that doesn't include the usual landmarks or milestones of Israeli Zionist history. Nothing about Zionist congress's or white papers and wars or terrorism anything like that. This is going to be a kind of hi-tech history. And it begins at the end of the 19th century. Okay the time when Western Europe and North America were industrializing and generating enormous wealth and technology. The rule of course in all these places was a kind of like a laissez-faire capitalism that as you're all familiar with. One of the results of the Industrial Revolution was a strong counter movement; the most famous one of course is Marxism and communism. At the end of the 19th century anarchism was also an important counter movement against the excesses of capitalism and Zionism. And there was of course nationalism as well, which might have been even a little bit of a backward-looking movement in the sense of trying to restore old values that seem to be undermined by industrialization and technology.

David: So you know for the Jews at this time. Most of them living in Eastern Europe or under Russian rule, the effects of industrial capitalism were very minimal. But nevertheless they were deeply affected by all these all this all these tendencies and not surprisingly at the time, Jews were living in poverty. They had no political freedom of any kind and there was a huge movement underway in the Jewish community to find solutions to the problem of the Jews. As it turns out, one of those of course was Zionism - the idea that Jews would pick up and leave and establish their own state in what was then Ottoman-ruled Palestine.

David: And very quickly that kind of Zionism developed into a kind of socialist Zionism. There were different strands certainly over the years. But the fact is a socialist strand was the one that ended up dominating the Jewish community in Palestine and going into Israel. How did this happen - we're talking now about people coming from Eastern Europe in the second and third ...those are the big waves relatively speaking. Big waves of immigration before and around World War One. Those people became the future leaders and built institutions that became the State of Israel. Long before there was a state there was a state in the making. One of the obvious institutions was the kibbutz; it's probably one of the best known ones, which combined socialism and agriculture and became the ideal for the community at the time. In other words, if you were a good Zionist when you did if you went to the kibbutz, or formed one the other as it turns out because of the security situation was the army what did these people have in mind these early settlers is they wanted to create a almost a Marxist ideal of a proletariat state farmers and industrial laborers being the population. Of course none of this was very realistic but you have to understand to the extent they willed it and the Jews were coming from Eastern Europe had no experience in farming or agriculture at all. They weren't allowed to own land among other things so the decision to be a farmer and to not even return to the land to go than land at all was something revolutionary and wasn't simply an economic decision… was an ideological one of the current Jews into producers. And the very fundamental kind of way bear in mind we're talking about the you know height of the Industrial Revolution it was also very backward looking in a certain way as well I don't think anybody picturing their you know their state in the making would say well we want to be you know farmers. Everybody wants industry and that was the future nevertheless this was a very important part of the Zionist movement and a very and important in the sense that the movement wasn't just about establishing a state of establishing a new society establishing a new kind of person and kind of willing history…Zionism was an act of will of a certain way.

David: Palestine in the first half of the 20th century had no industry to speak of but the early pioneers wanted to create a working class so in lieu of any industry in lieu of any capitalist they formed first a labor union called the Histadrut which was another big accomplishment of that era. And the Histadrut in turn formed started developing industries to employ their union workers. Again an active kind of will and almost defiance of the order of things as they were. And so you know again think this is a very very critical part of understanding the entire Israeli mentality even vis-à-vis high tech to the extent of which Israel itself and the Zionist movement and certainly in the pre state period was a conscious effort to form a particular kind of society that was highly mobilized in the sense everybody you know felt they belonged to. It wasn't you know immigrants just simply coming to a foreign country or to better themselves. Usually coming there in order to build this new collective vision. An interesting development of this period now we're talking you know in the early twenties 1930s. Tens of thousands maybe 150 thousand people. The entire Jewish community in Palestine at the time was tiny nevertheless and this is kind of… forgive me on these slides here… in an important aspect despite all this focus on workers and farming they're coming, returning to the land and so forth there was a strong counter movement to establish universities and again when you consider the you know raw material they had a tiny population and undeveloped economy it all seemed absolutely kind of crazy. But the fact is this was a another important trend of that era.

David: I understand and also important stranded kind of understanding the origins of high tech in Israel. In other words the idea of academic research went back you know comparatively speaking way back into Israeli history or Zionist history and became an important strand. Some of this contradiction you can see you know somebody like David Ben Gurion who is Israel's first Prime Minister and kind of the George Washington of Israel on the one hand you know tried to be a construction worker build roads which was a big deal of the time and but the fact is he also had a law degree which he got fairly late in life and was very very well read. In other words the idea that you were a worker without an intellectual interest or capabilities was kind of far into them …a contradictory. But that's how things worked. A.D. Gordon was another leader of the time you know which worked as a hired farm hand during the day and wrote philosophy at night. So this contradiction in his early Zionism was there from the very beginning. But you can see already some of the strands that would eventually lead from these kind of seemingly unpromising origins to what we have today. The State of Israel itself was formed in 1948. There was the war of independence. The industry that there was an Israel at the time, much of it was destroyed during the fighting. What was important that was a human talent was still there even the universities survived the war.

David: Hebrew University had found itself on the wrong side of the border and that we establish itself inside what was then Israel but the fact is classes continue and so forth there was also a big wave of immigration at the tim. The Jewish population in 1948 was about 650,000 people. In the next ten years or so population more than doubled. The other important factor to consider was despite the fact that Israel won the war of independence…didn't establish its borders but it had armistice and so forth with the surrounding countries. Didn't solve the fundamental problem that we were still in a war footing. The situation that

despite these two peace agreements or

three if you count with Palestinians

remains to the peace today and that

should also be considered a major major

part of the Israeli mentality going

forward in other words the idea that you

know the country situation is unstable

the army is a critical critical part of

this early life which I'll go into a

little bit more and you know that again

predates the founding of the state and

what it solved it all by by the fact

that Israel was an independent

recognized country given the situation

at the time the government's policy was

to continue the kind of socialist system

that existed in pre-state Israel that is

now there was a government instead of

a Histadrut labor Federation but the fact

the matter is the policy was that the

government would decide what industries

the country needed where the

factories would be built how they would

be financed and so forth it would be an

exaggeration call Israel a socialist

country at the time but it was certainly

very state directed so that socialist

ethic that's that had gone back to the

early early years of Zionism prevailed

into the state period and I will argue

even today it still remains are very

strong a factor in his early life Terry

to the credit of Israeli leaders at the

time economic growth was very very fast

those that was averaging like ten point

six percent per year during the 1950s

and 1960s that was I think the second

fastest rate of growth in the world at

the time after Japan but it was a

serious problem for the economy which is

that above and beyond the politically

precarious situation and the kind of

constant war footing

what's the fact is the economy had

nothing no particular competitive

advantage anywhere you know they tried

things like textiles chemicals and so

forth but in the end of the day was very

hard for a small country in a distant

part of the world to find any and with

not particularly low no without any

natural resources to speak of to find an

industry many industries where

it could compete very well

so despite fast rates of economic growth

you know there was a limit to how far

the government could take the country by

the 1970s Israel was not a wealthy

country it was a middle-income country an

important development came in 1967 that

was a year of course of the six-day war

but in terms of the high-tech sector

most critically the French government

who had been Israel's main arms supplier

imposed an embargo on future arms

exports

One of the consequences was the group

of frigates that the French government

had built promised Senate Israel were

not delivered and Israel went ahead just

of them anyhow but that wasn't a

long-term solution the long-term

solution was to build our own defense

industry but we had a serious problem

in that respect is you build a defense

industry meaning tanks and guns and

warplanes and so forth assumes you have

a steel industry for instance and an

automobile industry that could produce

engines and so forth none of which

Israel had there were some exceptions

Israel for example does build a tank and

I think is the only country in the world

without an oil industry that had

a tank industry and even briefly tried

to build a fighter plane in the 1980s

called the V which ended up being cancelled

because it was just not economically

viable what Israel did decide focus on

was communications and electronics at the

time it was a practical decision that

without the heavy industry you needed

for defense

the fallback is to build things you can

build and because we have the history of

these universities and you know reasonably

well-educated population who succeeded

in doing it is it turned out it was very

fortuitous to do this because those

industries those defense industries

became the basis for a high-tech

industry later on okay and we see that

you know the first generation of Israeli

technology was in telecoms and where

did this telecommunications expertise

come from came from the army you know

even unlikely things for instance one

early Israeli startup in

the 1990s already was developed one of

the first via robot vacuum cleaners

didn't succeed which is not untypical of Israeli

startup companies but what's

interesting about it is where did the

technology for this vacuum cleaner come

from from guided missile technology you

know some ex-army guy said you know it's

good for a missile it's good for a

vacuum

and there are other examples another

company that developed the first camera

you could swallow and use it for

diagnosing intestinal ailments likewise

also came from missile technology so

here you have a situation you have the

military industry you have an economy

that the little directionalist what

happens is yet another war follows in

1973, this one unlike the '67 war, didn't end with a great military victory

for Israel it was a bit of a disaster in

most respects we've won the war but a

great cost to the economy also in terms

of human life and also

in terms of damage to the economy war

dragged on for many many weeks and a

small country like Israel we are every

you know all adult males are called up the

cumulative effect of that was disastrous

what followed was what's now called the

Lost Decade for Israel where economic

growth with minimal inflation became a

very very serious problem with 400% at

one point the government was running

huge deficits the situation was not

sustainable

it all came to a end in 1985 where the

government undertook what's now known as

the economic stabilization program

without going into the details about

that I mean it solved a lot of these

problems in terms of inflation and so

forth

was that it basically was the death

knell for the socialist economy from

here on in the principle that you know

the government and the history Labor

Federation was running the economy with

a few entrepreneurs and capitalists on

the side who

had to listen to government directives

that system went by the wayside and

would be an exaggeration

to call Israel a hyper capitalist

economy although some Israelis think of

it that way but the fact is it's far

what the private sector is far more

dominant than it ever was before rules

and regulations are much easier and

without this process it's unlikely as

that the tech industry could have gotten

off to its start a decade or so later

because the fact of the matter is it's a

capitalist system you know regular rules

and regulations are

anathema to it certainly in these early

contexts and certainly I think it's fair

to say that no government has ever

successfully introduced any kind of

major high-tech innovation to speak of I

never reported from my first book in one

of the places on Silicon Valley is

around the world and one of the places I

surveyed was India and you know here

were the you know bureaucracy at the

time and government intervention

was immense you know put

Israel to shame in that level and you

know saying the reason why the tech

industry in India and the same applies

to Israel as well was thriving was because

the government it was taken by surprise

by this they never tried to regulate it

because they didn't even know what was

happening until it was too late

and once Sia was telling me that the time

India had won a string of you know Miss

Universe contest and they say well

reason why India sneaks a well in beauty

contests is because the government is

involved in that either you know in the

minute they set up set up a Ministry of

beauty that'll be the end

is run of beauty queens the same applies

Israel as well even to this day the tech

industry is very very unregulated

by you know certainly by Israeli

standards even by globally by American

standards I don't want to get too far

off the track but we're running into a

very serious problem now between America

and China you all are aware is a trade

war going on between Israel I'm sorry

between China and America right now but

it's also a technology war in fact there

are subject it gets much much less

attention the Chinese are committed

they've said as much to establishing

global technology leadership in key

areas like artificial intelligence and

needless to say America as the reigning

king is not too thrilled at this

prospect and you know Chinese are representing

something a very serious threat oddly

enough in all of this Israel's

considered to be the technology power to the

point that Americans have made quite

clear to Israel that you cannot be

helping the Chinese to the extent we

have until now are we helping the

Chinese it's a little unclear because a

lot of what goes on is going on quietly

but the fact that

Chinese companies are investing Israeli

startups you know Israeli Chinese

engineering college in China right now

and the Chinese are actually looking to

Israeli technology is to give them a leg

up in certain areas and so the Americans

are pressuring Israel to cool off the

relationship Israel of course is not

interested in doing that obviously China

is an up cand coming technology world

economic power and they're not going to

be in a position to

cool relations with them so easily or

quickly so inside of this process the

government's been under pressure to

restrain or restrict foreign investment

that is Chinese investment into Israel and

the question is how do accede to

American demands without getting the

Chinese too upset and without you know

ruining the goose that lays the golden

egg so one area that was exempted from

foreign investment requirements was

hi-tech in other words if you're a

Chinese company that wants to build a

desalination plant or you want to buy a

food company or a chemical company now

you're gonna have to go through a

government committee like the Chinese

have to in America if you want to buy a

high-tech company that is not the case

yet Americans made the only decision was

only made about a week and a half ago

and it's not clearly you know Trump

administration will be too thrilled

about this but you get the idea is one

of the reasons that the government was

so hesitant to include high tech in this

is because the industry is so

unregulated and that regarded as one of

its secrets to have a government

committee looking at each and every

foreign investment that comes into the

country would be a bureaucratic disaster

for the industry and so it was exempted

so it's very important to understand

that on the one hand the socialist

system that prevailed in Israel for the

first 30 or 40 years was a detriment to

the high-tech industry and you know it's

removal was a critical factor in

allowing it all happen the other

important thing to understand is what

happened in the 1990s was everything is

not entirely dependent on what happens in

Israel there were three major

developments globally the first was that

there was telecommunications

deregulation starting in America were

around in the 1980s remember or 1970s

the telephone industry as it was then

was dominated by AT&T; and a few small

companies in Europe a situation were it

was a government monopoly as in Germany

it was Deutsch Telecom and France France Telecom

and so forth that system was disbanded

starting in America

the second major development was the

rise of the Internet certainly something

we are quite familiar with and the third

the third I can't quite remember right

now oh yeah I know just two sorry about

that

I'm fine a second where my list was what

did that mean for Israel well I'll give

you the story about a typical Israeli

company at the time it was one of the

first generation of tech company is

called ECI telecom and again using

military technology they had discovered

a way to double the capacity of a

telephone line simple copper cable for

phone conversations so you can imagine

here's this company nobody's ever heard

of coming from a country that nobody's

ever heard of except in the cases of war

trying to sell some technology to say

Deutsche Telekom you know this bridge

German company that only buys some

Siemens and I remember talking to the

CEO of ECI Telecom you know years later

and he said it was just hopeless you

know they could have meetings they could

do trials and no matter what they did

there's no way Deustch Telekom

would ever buy anything from them and the

same would apply to France Telecom they

only buy from the French supplier and an

AT&T; only from

Western

Electric I'm sorry and so for suddenly

all these monopolies disappear they're

now competing phone companies they don't

have any suppliers they have no

relationships and even the veteran

companies also realize they have

competition now they can't simply depend

on a single supplier and their

monopoly and all of a sudden ECI telecom

gets a phone call from Deutsche Telekom

saying we're interested in your product

and from there everything took off first

generation Israeli companies the

internet you can imagine create an even

bigger reality for his early company

there was a whole new technology that

nobody even the old veterans had any

particular claim on as far as it goes

the Internet is a total free-for-all you

know it's not there's no operating

companies to speak of they're no

monopolies and these were two very very

big global developments that were came

at a critical time and Israeli

technology just as the social system was

unraveling and and there was opportunity

to start companies in a way you couldn't

imagine doing 10 or 15 years earlier the

situation in Israel today as far as it

goes is actually quite reasonably good

despite a very very difficult history

economic and political history

Israel's among the world's richest

economies and a GDP per capita basis

it's number 35 in the world which is

fantastic most of Europe is ahead of us

but not all of Europe number 22 in the

UN Human Development Index it's an open

economy with free trade agreements with

Israel with the US and the European

Union

exports are you know 30 percent of the

economy

again these are not spectacular numbers

but you have to understand given you

know where Israel is in terms of being

in the Middle East in terms of it's a

war footing over the years we've still a

very high defense and you know defense

spending is still a big big part of the

budget I think they part of the economy

people still do reserve duty

eighteen-year-olds go into the army and

lose a couple of good years of their

careers and so forth said

also the mass immigration and the need

to invest resources and you know big

population growth and also the fact that

Israel was diplomatically and

economically isolated during much of the

nineteen seventies and eighties during

that lost thicket I spoke about I think

all of these are quite impressive

metrics on the whole so we're looking at

all this history and saying what's going

on here I think we can say that you know

in looking at the negative sides you know

agriculture socialism war don't look on

the surface to be very promising

antecedents for high-tech economy

it's very nice university defense

industry in the 1990s it just like I did

neglect to mention there was some waves

of immigrants to the Soviet Union who

were highly educated and unfortunately

not necessarily educated in things

the Israeli economy needed I remember at

the time they were awful lot of for

example metallurgists and forest

engineer forestry engine experts and

things like that but on the whole was

extremely well more there were more the

number of doctors in Israel doubled in

the space of like five years as a result

of that so that was all on the positive

side but if I look at the whole

situation you'd say the metrics for a

high-tech economy were there but there's

nothing really spectacular if you go to

any European country certainly Germany

or Britain or so forth they had all

these things very good universities

an educated population and so forth they

had an industrial base that Israel did

not have and yet look at the situation

today all these countries are struggling

to build a high-tech industry of the

kind that Israel has so outpacing growth

in Europe okay here is the high tech

industry rabbi Hillel Reagan on one on

one leg about every year 1100 to 1300

startups are formed that's in years of 2012-2016 where the biggest

spender and a per capita biggest spender

in terms of the percentage of the

economy on RND sometimes South Korea

beats us in some years but most years

were number one it's about four and a

half percent of GDP unfortunately I

don't have the figures for other

countries but it's two to three percent

range for most countries in terms of

patents per capita Israel's also one of

the you know has on a per capita basis

one of the highest rates and there are

about 300 or more multinational

companies you know IBM Microsoft Apple

and so forth that have research and

development centers in Israel which is a

testament to Israeli

innovation a company like Facebook you

know one set up an R&D; center has a

favorite anybody you only do it if they

feel like there's the human talent there

that's going to contribute well I won't go into further

detail about that let's now get to the

crux of high tech in Israel and that's

the phenomenon the startup company just

to say a few words about what that is

it's very critical to have a firm

understanding of it a start-up company

is a business that's begun to develop a

new product or service and backed by

speculative capital which is really cool

venture capital its value is usually in

the human resources other words it has

very few little weighed equipment has

to know you know it doesn't have any

mining rights or anything like that

its values and the people who work for it

and their and their human talent the

focus is on R&D of course because

you're starting from scratch and on

constant innovation now Israel didn't

invent the concept of a startup company

and that goes back to Silicon Valley

here in California in the 1970s well we

can say and this is very critical to

understand that when the startup

phenomenon did gain momentum in America

it caught on in Israel very quickly the

first companies were already in the late 1980's and already by the early 1990's

it was an acknowledged phenomenon and to the

point that you know California has

Silicon Valley in Israel we're known as

startup nation there's a bestseller nine

years ago with that title and it's going

on to the point now and I think that's

very important to understand that

Israeli technology is about startups

that might seem self-evident but it

really shouldn't be

because if you go to Silicon Valley

there are of course plenty of startups

but there are plenty of companies like

Google and Facebook Intel and so forth

these are companies that are you know

won't cease to be startups and they are

publicly traded they're worth billions

of dollars they employ tens of thousands

of people and so forth so the question

is when I talked about you know

developments globally the internet

telecoms deregulation you know these

things happened outside of Israel's

borders certainly as I said before

internal changes in Israel that enabled

the high-technology sector to take off

but the fact is there were major

external ones as well external to Israel

and the question is how did Israel

capitalize on this when a lot of other

countries you know should have been able

to failed or certainly didn't succeed to the

extent that Israel thing in my argument

is that it really lies more than

anything else more than the issues about

regulations and rules or taxes and so

forth is in Israeli culture or a close

social trace and it's very critical to

understand this because if you go to

Silicon Valley and there are statistics

about this look I'm barely nobody says

that you know the area of south of San

Francisco the people there had any

special abilities or came from and you

know had any special background that

made them particularly good at starting

up companies and innovating and

developing high tech Silicon Valley drew

people from really the four corners of

the world and it's at us today and if

you look at statistics the number of

immigrant entrepreneurs in Silicon

Valley is immense it's not even an

American phenomenon in other words

people with those kind of talents and

those kind of traits or gravitate

towards Silicon Valley in Israel that's

not the case at all

The startup nation phenomenon in Israel is

wholly Israeli there are almost no

foreigners of any kind they are till

very recently and the government didn't

particularly encourage you know there

was no entrepreneurial visas or anything

like that and so you have to look and

see what it was that happened in Israel

it wasn't as if Israel was drawing

people from around the world with with

those traits those were all internally

developed or it came from inside Israeli

culture and at the risk of being a

little simplistic I've kind of boiled

them down into four things and any of

you will visited Israel will immediately

recognize a lot of them because it's not

just they manifest themselves in

startup companies and then have sets

themselves when you try to get service

at a restaurant or get into an argument

with somebody who won't you know won't

let go so the first one is a distaste in

organization hierarchy and rules so

you'd say here's the country whose

antecedents or social antecedents were

socialist people serve little things in

the army which is you know very

hierarchical normally my argument is

first of all facts are out there if you

look at Israelis they're not very good at

organizing anything but the important

thing to understand is that the

socialism that developed in the early

Zionists days was the kind of bottom-up

movement

it wasn't top-down you know I'll use the

kibbutz as an example you know when

Stalin collectivized farms in the 1930s

he didn't ask the Ukrainians if

they wanted to and they weren't given

much leeway in how the farms were

going to be organized. They simply got an order and that was the end of that. The kibbutz is an institution while

had you know an official status was very

much the work of people who got together

and said we're building the kibbutz

and once they people to establish it was

very very democratic it was an independent

entity of the other kibbutzim and

so the socialist ethos those was not very

hierarchical at all I would go as

far as to say that that applies to the

army as well if any of you have any

experience with the Israeli army

as army's go it's extremely unmarshal and

and we'll leave it at that for time

being the second factor is a strong

culture of teamwork and group loyalty

which is the obvious outcome of this

kind of Israeli brand of socialism when

I first came to Israel many many years

ago I was very taken at the very

beginning how this concept of louche was

so critical to Israeli society which

means which was kind of crystallization

or getting together so you know your

child and in first grade it's important

that there's a class spirit you know the

class thinks of themselves as a team

it's something you don't really see in

America at all and that kind of ethos

extends obviously to the army as well in

the workplace it's also considered very

important you're not just employee of

the company you're part of the team of

people you're working with

and in the tech world this is very very

important I think there's a kind of how

common is any longer myth that you know

the innovation is you know some lone

genius working in a laboratory or in

front of his computer late into the

night that's not how much innovation

occurs now it involves people from

different with different skill sets and

different kinds of knowledge getting

together

and working together and that's a very

very strong Israeli talent you see that

in a lot of startups that are drawing

from different areas of expertise

another manifestation of that is a

turnover rate for the early tech

companies is very low which people don't

look at themselves as independent

operators and you know barking in a

career of every sort willing to offer me

better terms or a higher salary I'll

jump ship and move there

you know what happens of course deny

that but it happens a lot less because

people feel that they are simply working

for an employer they are part of the

team the other thing which is an obvious

outcome of this of Israeli history is a

very strong stomach for mis-taking you

know high tech is certainly in the

startup that's what it's all about

you've got to be able to convince people

entrepreneur certainly of investors that

you're going to basically take a big

gamble on something entirely new

like maybe compare it to the restaurant

business you know people are opening

restaurants all the time a lot of them

fail but the fact is the restaurant

business is well known you know you have

a menu you have a location you have an

ambiance and like that a name and so

forth it's a known business there are

ways of going about doing it nobody

normally in the restaurant business

thinks about doing something entirely

new that's not the case with any startup

is you're starting from absolute zero

there are ways of course of developing

new and innovative technology but the

fact that usually what you're doing is

trying to do something wholly from

scratch and so the risk reward is any

venture capitalists will tell you is

very difficult in other words if you see

you would succeed enormously but more

likely you're going to fail and so you

need that kind of culture I think it's a

problem in Europe where

they have a much more stronger economic

base in the words of your talented

engineer there are plenty of

opportunities to work for big companies

you know collect your salary do very

interesting work have very good

conditions and retire retention and

so that's a big deterrence to getting

people who might be able to start up a

company and might be able to do original

innovation to go ahead and do that the

other important thing is a strong

orientation toward problem solving and

completing tasks which I would say is

the polar opposite of organization

where Israelis excel is giving them a

goal you know if you're in the army

conquer that hill if you're in a

startup company and we need to get the

bait out in three months or something of

that nature when you ask them to come in

and do a routine of work you know we

need to send out certain amount of the

accounts receivable every day and so

forth that's where things start falling

apart Israelis are not very good at that

and again I think that goes back to

historical antecedents you know the

Zionism was a project every step of the

way was regarded as a mission but when

it comes to the routine of you know

taking care of things efficiently in an

organized way that's where things in

Israel kind of slip up again this is

very helpful for the startup being in

the startup phenomenon as we'll see it's

not very helpful for the economy in

general if you want to get a deeper

understanding of this I highly recommend

a book which is actually available in

translation called the Sabra the

creation of the new Jew by Oz Almog and he

goes into great detail about how these

values were instilled in Israeli society

going back to the 1920s and '30s he

doesn't relate it to high-tech but the

fact is if you you know read the book

you start seeing the connection very

very quickly

as I said you know the whole Zionist

enterprise in a certain way it was like

a big startup company in the sense of

very mission oriented task oriented not

very organized all the time very much a

case of people taking initiative on

their own and so forth and this is a

value that something very very

fundamental to Israeli society one way

you see that is values against

particular skills in other words as I

said before Israelis are well educated

they very good universities and so forth

but there's something bigger than that

there's something about an innovative

drive and one of the ways you see it is

in the evolution of high tech and the

very beginning is like said

telecommunications was the be-all and

end-all of high tech and Israel was the

beginning of the internet and that's

where all the action was and remember at

the time a lot of people were saying

well you know the simple reason for that

you know the Israelis are taking all

this technology from the Army and

they're employing it in civilian

applications and that'll be the end of

it that didn't happen as it turns out

those innovative skills and I don't mean

strictly engineering skills but the

whole process by you know these four

traits I spoke about are applicable

almost anywhere in high tech so we have

the example now that one of the hot you

know industries in Israeli high tech is

self-driving cars or Auto Tech and so

forth which runs a whole gamut of

technologies from the actual technology

of self-driving car is to Internet

Security for cars and so forth and you'd

say you know like the story of the tanks

you know how is Israel have an auto tech

industry without any automobile industry

what the fact is what we'll be able

technology if nothing to do with

automobiles and the internal combustion

engine it has very

much to do with digitization and so

Israeli talents in digitization simply

apply are being applied to the mobile

industry now you know the same ways

being applied to financial technology

and so forth now it's spoken about the

RV's contribution in terms of the

defense industry and that was certainly

very important in that respect but I

think what's more important in terms of

the army and high-tech is the actual

army experience itself that's the one

okay I think most people you know got an

impression of army service which is

probably correct in most cases is you

know you're going into this you know

hierarchical system you evolve server

you're a uniform you have a rigid

schedule for your day and so forth which

is to a degree true in the Israeli army

but not nearly to the degree I think

that you've seen in other ones I think

there's a big element of high tech

values that are transmitted by the army

young Israelis in other words a lot of

these kind of suburb values and these

four traits I've spoke about are

certainly things that people see when

they are experienced and they grew up

but here you have a situation where you

turn 18 and you're bought into the army

where these values are still very very

seriously in a very sensitive time of

life in other words is the first time

you're away from your your family first

time is here you know you really in the

world as an adult and so the Army's in

is in a unique

position to instill certain values which

it does bear in mind you know today that

you know in Israel there's still a

universal draft by no means everybody

serves but among the core group of

Israelis that were not ultra-orthodox or

Israeli Arabs the rate of enlistment is

our draft is very very high

and so it's really almost a national

phenomena the kind of experience that

almost everybody in mainstream Israeli

society goes through in one way you see

that is in the top left-hand quadrant

here the percentage of people who did

army service who were employed in the

high tech industry only 10 percent

didn't serve when you consider there are

a fair number of immigrants and people

like that that's a very low number

that's less than the national rate of

non service 29% were in tech units which

was very credible 31 percent even more

in combat units and so forth in other

words it's pretty Universal that people

in high-tech served in the army you have

the the story of how that works is very

very complicated I won't go into it

right now but I think it's safe to say

that again these traits are basically

you know part and parcel of the army

experience and people coming out of the

army have them so far from you know

learning to obey orders and so forth you

learn the opposite which is their times

and you can defy orders when your

commander can be told off and so forth

one small story of that my stepson who

was in the Air Force was telling a

couple of years ago now the training

session for young pilots and they were

playing back a recording of a mission

it happened in 15 or 20 years earlier

where some soldiers were in Lebanon

they've been ambushed

and a helicopter team needed to go in

and rescue them so the helicopter team

helicopter is flying into the battle

zone becomes under fire helicopter

retreats again retreats and you're

hearing the recording the commander say

to the helicopter pilot

you know abort missions over or

something we can do for those soldiers

you know come back home and the pilot

says I'm sorry you know I can't hear you

we're gonna go back in again and this

dialogue goes back and forth the

commander a second time says you know

back at the home base you know important

mission and the pilot says repeatedly

not following what you're saying we're

going in a third time and a fourth time

and finally fifth time they succeeded

so you're saying okay what do we learn

from this is well here are a bunch of

recruits future helicopter pilots and so

forth being shown or taught a lesson

which is you can you know disobey your

commander if you do it for the right

reason you know wouldn't exaggerated

everybody does what they feel like in

the army by no means the case with this

my stepson was saying is you will never

get in trouble in the army for

disobeying an order for the right reason

which and so I think that it speaks a

little bit about Army Values and how

they get transmitted into Israeli

society and then you see they well these

people end up in the high tech sector

all wonderfully good we have these

startup companies are very innovative

you can see all the reasons why the

startup phenomenon has been so

successful in Israel but how good is it

for the Israeli economy and other good

buddies a high tech entrepreneur or even

works for high tech company so a few

more things to say about startup

companies is by their very nature

they're not meant to last forever

usually the case is if you've got a 15

year old high startup company there's

something wrong

because that's Italy just not the way

the industry works there are a couple of

ways of solving this problem beside

going out of business

one is to take your company public okay

that is initial public offering very few

Israeli companies do that I'm not even going to

try to find a slide now because we're running

out of time last few have just eight

companies and you had an IPO when they

raised hundred fifty billion dollars

it's really chicken feed the alternative

is to sell yourself to another company

you know the usually foreign company in

an M&A; deal last year the number was 11

point 1 billion dollars and the far more

deals 89 of those in the Israeli context

this stuff happens in Silicon Valley as

well but usually the startup company

sells itself to another American company

or another Silicon Valley company in

Israel the phenomenon is the DAR no big

companies to sell yourself to this

startup nation you sell yourself to

Apple to Intel to SAP and what

typically happens is you know the big

multinational will then take your

startup they will fire everybody because

the whole reason they're buying you is

for your Human Resources you become now

the load Israel R&D Center for

Apple right so the point where Apple

will have like 6 7 R&D; centers each time

to buy a company they send their

R&D; center and keep the staff employed

that way sometimes you're not emerging

them and so forth but the fact is that's

the bottle of the startup the startup

sells itself

sometimes they're crazy amounts of money

of companies 10 or 15 employees selling

themselves for hundreds of billions of

dollars in some extreme cases and so

forth

very good investors cash out employees

are happy they sell out their jobs now

they're working for a big multinational

all those opportunities the problem is

for the Israeli economy startup

companies by their nature are small they

don't have a lot of what you make it

seem called knock-on effect in other

words they don't buy very much they

don't you know they don't need

much office space they don't build

factories apart from ordering pizza

late at night they don't even need any

suppliers I mean and so what you have is

a situation Israel where startups

account for about 8% of technology accounts

for about 8 percent of the workforce and

that number hasn't grown okay

and that's a serious problem because

most people like myself are

technologically illiterate certainly

don't have any disk engineering skills

that are required for start-up cup and

they have no chance at all of finding

employment but on the other hand these

companies don't grow either so if you

for example you or you know marketing

degree or skills in marketing their

degrees their skills and finance or in

logistics there's no room for you

there's none of these companies need you

because they don't need any of these

functions they're there to produce R&D

and then sell themselves when the time

comes and become an R&D unit and so the

rest of the economy is left to fend for

itself as I said earlier Israel has not

been found an industry where its

competitive outside of high tech and so

the situation is you have a basically

Tale of Two Cities in Israel a thriving

high-tech sector and in rest of the

economy that does alright but not

spectacularly well one of the reasons

for that of course is something I alluded to

before which is all the qualities that

make a wonderful startup company

teamwork you know and so forth you know

are not good qualities for running

a big company and the result is Israel's

record of big corporations is abysmal

you know we've had one or two of them

for example Teva pharmaceuticals we just

still the world's biggest maker of

generic drugs it's been have a long

record of management failure to appoint

the companies endangered I will say two

minutes about the problem as far as it

goes the government and the hi-tech

industries where this is endless talk

about well we're no longer start-up

nation we're scale-up nation whether

words these companies are now going to

start growing and you know going public

and they're gonna turn you know it's not

going to be the next Google you know

they'll be the next you know

medium-sized global tech company you

have yet to see that and I think there are a

couple of reasons for that beside the

issue of you know resistance to

organization and big business and so

forth well there's one problem which you

might find surprising considered we're

startup nations the schools are pretty

miserable they don't teach very good

skills an international exams Israelis

or something the best students do very

very badly compared to their European

even American counterparts the army by

the way makes up a big part of the

compensation that to a large degree also

Israeli work skills outside of the

high tech elite are not very good in

other words when they measure literacy

and numeracy skills Israelis spike up

very very badly

another problem time barely going to

touch on is there's a growing sector in

the population is ultra-orthodox Jews

they don't get any kind of education at

all that's all relevant to the modern

economy certainly not the high-tech and

so there's a very serious ceiling on the

number of how big the sector industry

can grow other larger than marginal

problems once there are no Israeli Arabs

working in the industry to speak of and

almost no women in high tech in Israel is a

male Jewish secular phenomenon and so

the number of people who can really and

those are the people who really

represent those values so there's a

really serious ceiling on on how far the

industry can grow and again for the

economy this is not very good news I've

ended on a sour note sort of and I

really didn't want it to be that way but

it was running out of time it is

important you know this is a serious

problem I don't have any solutions for

it I don't think the government does

either at this point but the fact of the matter

is it's pretty remarkable phenomenon

it happened at all it's certainly the

only industry where Israel has has

really succeeded and I would you know on

the balance considered one of the most

remarkable achievements of the Jewish

state in the last 70 years maybe on par

with reviving the Hebrew language or for

that matter

surviving 70 years of war so I think in

that respect you know can look back on

it as an immense success and hope that

in one way or another there's a way of

capitalizing it better than we have

succeeded until now Q&A

X

X

XX

[Applause]

wondering in your talk you made mention

that but I missed it one one major

difference that I always sense is

between say Israel and California or the

US it's the issue of geographical

proximity you know which really allows

you know the kind of interaction amongst

people from different places in a much

more efficient yeah wait what's actually

interesting of all things the tech

industry you think is the most you know

we eat or not sabe and so forth it's

actually the most people orient in the

sense that it's not just a Silicon

Valley in Israel everywhere in the world

I can tell you from my experiences you

know it's a technology clusters our

clusters are always centered in places

where people can have immediate contact

with each other defectives technology

hasn't really quite conquered that

barrier for Israel is a problem or has

been a problem in the sense that totally

isolated there's no other technology in

the Middle East and even Europe is you

know a plane ride away Silicon Valley as

it turns out is about as far away you

know 10 terms for time zones you can

imagine how a lot of Israeli startups

get around this problem is they set up

offices in the u.s. almost immediately

then you might have a company with 50

people five whom are working in San Jose

and things like that usually they do

marketing and sales and so that's one

way of getting around it but I think on

the whole it's pretty remarkable that it

managed despite that despite the

distance to not only develop in Israel

but have build a very close connection

with with Silicon Valley one thing I

might add to that is which is also kind

of funny because again you think of high

tech it's not being about so much about

people is that there were a lot of

Israelis working in Silicon Valley in

the 1970s and 80s before there was any

place to work for in Israel and a lot of

them were able to create the ties and

enabled with Silicon Valley that enabled

the industry in Israel to take off in

that respect Israel's not alone India

had the same phenomenon and so did

Taiwan

and expats working in Silicon Valley who

smooth away for there too so that was

the dynamic is kind of complicated the

fact is and this is not great for the

industry either in a sense of most of

the capital going through the Israeli

industry is foreign usually the way it

works is first a lot of foreign funds

have local offices so they have people

on the ground the second thing is

usually they come in is you know wait

startups work is you know you you know

you see you know finance a company

sometimes buy your own money or from

friends and family and so forth and then

at a certain point you go to venture

capital funds for you know when you're

going to your second round or your third

round of your fourth round and you get

more capital that way I mean so will

typically happen is the first round will

be some Israeli fund which is relatively

small but they know the company very

well and they know the people critical

and then by the third or fourth round

the big money from America or from China

or Europe comes in so they don't need to

know quite as much because the company's

already proven itself you know they've

made the connection and so forth but the

fact is most of the money is foreign

you mentioned that basically the

ultra-religious and the Arab population

which is somewhere between 30 and 40

percent but the total these are really

population really does not but 30

percent yeah okay in the high-tech is

that a structural issue is it an

economic issue under this security issue

why does this resource

I may be trained and like this it's I

think it's a combination of all these

things in the case of Israeli Arabs

because the defense industry origin of

the high-tech industry you have to

served in the army to get any kind of

job of any kind and so it's really our

do not serve in the army

it's not required to were you know we're

immediately cut out of any positions

like that but I think in the supply is

probably these days much more important

because the fact the matter is even

though you know the people going you

know starting high-tech companies and

people working for them will have army

background that technology already is

you know being developed in the civilian

sector it's not as it's coming out of

the defense industry but I think is a

very serious problem

is that you know it's really Arabs don't

share this kind of sabra culture I'm

talking about so their first problem is

you might not need to observed in the

army for security reasons but the fact

is a lot of these companies are founded

by people startups are founded by people

who became friends in the army and

they're working on the same team you

know in the intelligence or something

like that and so this really Arabs are

part of that whole phenomenon but I

think a bigger thing is these all these

kind of values I talked about are not

necessarily sure

Israeli Arabs because they didn't come

from that they I don't want to get too

sidetracked but the fact is for better

for worse you know the Arab minority was

left to itself have their own schools

they speak Arabic they have their own

media so they're not part of the

Israelis story and so the upside is they

have much more cultural autonomy than he

might already America could imagine the

downside is they're not as much part of

Israeli society so there's been a big

big increase in the number of these

early hours

attending University in general and

especially in engineering so that

element is starting to come into place

but I think we still face the cultural

barrier from tech culture

that's well I think I said that's a

universal situation is you know women

don't pursue engineering degrees so

nearly the same rate as men the one

exception interesting enough is biotech

keep an eye you know just you know

writing about biotech moisturize number

of women CEOs they are I think are even

a majority but in the hardcore you know

tech the telecommunications and so forth

or reveals and so forth they're simply

not study you can see the university

figures

I think that's starting to change but

not nearly as much as you'd expect and

it's a funny situation I think the same

in America as well is you know women and

Israel now you know women are a majority

of students in medical schools they are

not majority and engineering colleges in

fact they're a majority of the

university population and so the barrier

for whatever reason is much higher and I

don't have any good explanation for that

but obviously if you don't have an

engineering degree and this will also

applies to the army as well is you know

they have tests to get into leak

technology units and the number of women

who get in is much much lower and the

number who stick it out is also much

lower and that's a big big barrier in

other words you're not in you know if

they call a two hundred the a lead

intelligence unit you're coming in a big

big handicap

running over david birthday

actually there are statistics on dates

but I don't have the numbers in front I

would say slower but that's where the

industry works is every fourth year

going to succeed but if you hit it big

was how venture capitalist operators say

soon-young nine out of ten in their

companies

that's a very very good question what

happens right now is defense exports are

highly regulated cyber security even

cyber hacking stops that may just be

error and partly word says technology

got ahead of the system which is not

unusual I am not a hundred percent sure

these early government that's really

trying too hard to crack down on this at

the very good export and then to

something I didn't get into but the fact

is being a technology power like Israel

is extremely useful diplomatic tool in

other words we have some of the

countries that are using this technology

our countries Israel wants to have

closer relations to and one of the ways

that you make friendships like that is

help them with their security problem so

even though the government says yes we

disapprove of this there's no something

really yousa proved it that much so I

think it will probably continue unless

the pressure grows immensely what do you

see as the future in terms of what type

of technology or company could possibly

become what you're talking about like a

midsize company and also do you see in

the future brain-drain

second question is easier to answer

which is there is a brain drain on the

academic level a very serious one Nora I

assume your mystery word regionally some

of Israel's you know best and brightest

scholars simply there are no places in

the Mideast and they go abroad it's not

a very good statistically but in a

number of Israeli Nobel Prize winners

who live abroad is I think equals and

who likes you live in Israel or very

close to it and that's very serious

problem because you know the

universities are an important part of

the tech economy in the academic

researchers just as much as you need

startup companies and a lot of those

people are being lost in fact in a

couple of cases you know they've been

Israeli academics who started tech

companies here at California which they

could have been doing back in Israel but

they were you know they're working at

UCLA or wherever else at Stanford and so

they said the company nearby so that's a

serious problem in terms of actual tech

core engineering talent there is

surprising a little level of immigration

and generative Israel's not very high

rank various we've just explained that

but the fact is it's not really a big

issue in a lot of cases people who leave

for extended periods often come to

Silicon Valley you know build up their

networks and career and then come back

or if they don't come back and they set

up a company back in Israel and they

stayed here so I don't think that's a

very serious problem as it goes that's

the more problematic part of me is

really kind of anti-business attitude

Ranta organization i dude is

complemented by you and i caught great

skepticism about marketing and sales in

other words so that for example tech

companies in this room was never going

to you know b2c businesses because

they're just not very good at Emily

consumer markets one possible opening

which is developed over the last you

know several years is because of web

analytics now you can market in ways

that we're totally unimaginable ten

years ago you don't really have to be

that consumer sabe in terms of you know

building a brand you can figure out over

the Internet through basically through

internet tools and so now you're seeing

some fairly big companies b2c meet to

see companies and

that are succeeding the question is you

know on the pot on the upside you know

for a small economy it's not necessarily

desirable to build two big companies

that are too big the experiences with

Finland and Nokia I think was a good

lesson for everybody in the sense of you

know that this hugely successful company

with basically one product a cell phone

and it crashed miserably and the Finnish

economy reeled in a response because

Nokia was so big you couldn't couldn't

fail but it did it's not a bank or

something the government could rescue it

so from the side of Israel's interest

necessarily to create you know the next

Google the question is whether or not we

can succeed in I guess developing the

tech equivalent the German middle son

company and the word see a moderately

big export oriented company that grows

but doesn't grow it fantastic rates

doesn't need to necessarily go public

the ceiling for that I think is the

problem that you deluded to before about

the Israeli workforce simply there's not

a big depth of skill and talent outside

of high technology and for these kind of

companies to thrive you need people were

doing a lot of other things beside

innovating I think in the world of

general business as well you know the

idea you know people doing you know kind

of routine organization work is kind of

conclude now but the fact is that's all

most big companies work they have stand

there is a you know hierarchies they

have rules and bureaucracy and that's

what makes them succeed

companies and that's where Israel has a

serious problem right now I think the

solution would be not so much on the

corporate level is for the schools to be

reformed and to create a better

workforce for the next generation yeah

you hit on a few of the potential

struggles that they may face is it

because it's a moving comer what are the

reasons to be optimistic as a release

the proliferation of startup well I have

to admit you know I very little respect

for the government and you know being

able to manage policy I didn't get into

it but the fact is it was a brief bright

moment in the 1990s where the

government's basically would stop the

venture capital at this you're gonna go

into the details it was remarkably

successful they did it they succeeded

they shut down the program because it

wasn't needed anymore but that's very

rare that's something like that happens

there are some rays of light for example

there was a souvenir there's been a

serious shortage of Engineers

and the government got its act together

and they put together a program to

encourage more engineering students you

know giving incentive to the

universities young people today of

engineering degrees and it's been

remarkably successful the number of

people enrolled in engineering programs

now just grown enormously just in the

last 2 or 3 years so that's helpful it

will certainly increase the population

I'm more skeptical about the

government's ability to reform the

schools and then it's you know everybody

acknowledges it there's no nobody

disagrees the schools are not

universities are very good by the way

but the in the elementary high school

level performance is very very poor and

for people to succeed me too they get

those skills in the army where they're

just naturally talented but you can't

build an entire economy around that so I

think unless that problem is addressed

very seriously I am a little skeptical

at how how how far the tech industry

thing go if I had you know patas

positive spin on the news

become evident now is that the skills

like you call digitization skills and

you can take them up anything and turn

it into a business its power very

powerful in Israel in other words you

you know go into industries you know

nothing about and apply to this thing

you know those same skills so example

there are a bunch of Israeli companies

here in the US you know doing online

insurance for various innovative schemes

didn't even bother to do in Israel but

he of Israelis they stood up in New York

Chicago and but none of them have

entered the Israeli market and they know

and the founders know nothing about it

nothing about insurance at all but you

know they've been able to figure out the

system they're doing very well one of

the school lemonade I think it's the

best known in the bunch yeah

there was a lot of it the surprising a

little venture capital investment in

they call water goes into the rubric of

clean tech so that glutes solar power

and and so forth

it has not taken off to the extent you

could partly because there just isn't

the venture capital backing for it and I

think also because it's kind of the

system is a little different it's much

more oriented toward you know government

projects and big organization that's

where I think is really companies have a

more difficult time in the case of a lot

of water technology especially

desalination a lot of the global market

is in Arab countries that will simply

not buy from Israel at least not on the

not openly that's also a very big

barrier I think though over time you

know desalination is becoming much more

what more widely use in the market will

grow but it's a barrier for companies in

general there's a big push to do things

in Africa the catch of course there is

there's no money see if you can get you

know foreign aid to cover things like

that but it's good very difficult

because you know the Chinese are coming

in with their own technology and so

forth and much much bigger government

support so it's not one of this it

should be one of the stars of Israeli

technology but it's not at this point

[Applause]

[Music]

[Music]

[Music]

so many years apart

[Music]

okay Tom - send me send me a check it

was very interesting I'm sorry

well I have you right right in in each

the terms of the culture there's another

thing that Israeli situation everybody

has an opinion but I think the

difference is that in many Israeli

startups a pleasure that I've gone to is

harder everyone can express your yeah

anything and you listen to it and I was

in a conference I was invited in

conference I was in Japan and I remember

I can't remember his name but one of the

reach that came to talk when except I'm

essentially calling from defenders as

you guys are not gonna make it as here

to hire you know and and then I talked

to a fellow you know that actually was

from UCLA and is working for something

and he came to me and he took me was one

of the innovators who's worked on the I

the Sony Walkman is on and it says you

know they didn't make it far since

because you could not go to his and

actually tell them that that idea

bunch of you think you just came in from

Santa Clara Americans each other people

whatever and the meeting is over and

traumatized it's really terrible yeah

we're not gonna get any from interested

that was a great meeting we know where

he stands now so it's just a different

different without you know it's still

Florida Keystone - till today she's an

attorney around the tail well it was it

was a pleasure

you were nice to do quite a bit actually

I'm kind of gonna be there in May for

for a conference about the waters in

this I may not join faculty involved you

know organized but I'll be fine

why do you think

[Music]

[Music]

knowing the clips like it one more

question why do you think like it's like

you have free to policies which are kind

of like you said that are coming from

the same cultural argument I guess

[Music]

that's true maybe looking at way needs

in particular and it's like one of us I

don't see much the importer remarkable

success in silico Google my crystal well

they're all run by Indians as Pat's yeah

a number of startup entrepreneur

thinking to use like number one yeah

number one I think it's among foreigners

you're here today talking about the the

tech industry we would you see a gorilla

some girls in the street

now these sales you know mature industry

and come say is it still very early in

its infancy I was future usually

characterizes immature incentives lots

of stars companies in bottle model

mature big multinational companies and

you know you look at waves and you look

at global I what are the big companies

you think that people should keep your

eyes on in Israel that you know could be

the next very very difficult top ten

companies or whatever five years we have

some around a business very very

difficult these kind of things

when I think areas cybersecurity the

very very

how is the Israel's you know

collaboration of China or you know

investment in the tech sector with China

creating if you will you know some

friction with the US now and do you see

Israel is curbing some of the access to

technology down the road or what do you

see out there well these are testament

to Israeli technology that the US would

even regard Israel being serious enough

player that it wants to crack down ties

China's interest of course in

misstatements and they're trying to move

up the value chain to do that technology

Chinese and very good position because

we're a small country and we don't have

the aspirations of building

what effect we have we're happy to deal

with the Chinese the American point of

view this is a mattock because

I'm AmeriCorps debarked itself is being

made head on head competitors with

Chinese for technology leader kid in

certain areas like artificial

intelligence and very very you know how

this is going to work out additional

videos alive on the one hand America

either troops strong Allah hurry bring

pain economic relations Silicon Valley

reports Washington on the other hand

everybody acknowledges the Chinese to

rising economic power and

and lastly you mentioned that in the

industry in Israel's high-tech industry

many women to represent it is the

government doing anything about that or

trying you're doing programs to

encourage they are very very very you

know why that's the painters kind of

beyond my ability to fully understand

but as long as we don't do it there

shouldn't be a very serious

you know Israel had bigger multinational

companies so they've been born actually

in the core engineering fields they

would be marketing or in personnel or

finance and so they find employment tech

industry without being engineers the

fact is though that in Israel where

startups the predominant future in the

industry aren't that many jobs are some

engineering jobs and so the challenge is

even greater thanks David

for On Tue, Nov 12, 2019 at 9:26 AM Daniels, Jeff wrote:

Stuart A. Gabriel is Director of the Ziman Center for Real Estate at UCLA and is Arden Realty Chair and Professor of Finance at UCLA Anderson School of Management introduces conversation with David Rosenberg, Economics Editor and Columnist for the Israeli newspaper Haartez (English edition).

Gabriel Gabriel: David comes to us today from Jerusalem and he is a very distinguished, very well known journalist in Israel. He's the economics editor of Haaretz which as many of you know is sometimes compared with the New York Times. Very important outlet in Israel and around the world. And in the three decades that he's been in Israel he's also been Jerusalem Bureau Chief for Bloomberg News and also the economics editor for the Jerusalem Post. He's been writing books in recent years in addition standard sort of newspaper journalism. He's written a book studying the tech sector in Israel. He wrote a book called Cloning Silicon Valley. He's just written a book called Israel's Technology Economy. It's a very interesting and readable book. I was reading it last night. He's going to talk some about this tonight. He's gonna talk both about the innovation and entrepreneurial and startup phenomenon in Israel, and he's going to put it in the context of what that means for the broader Israeli society. So I don't want to hint any further. But with no further ado, please welcome David Rosenberg. (applause)

David Rosenberg: Thanks very much. I was going to start my talk with the quote from all people Moshe Dayan - not somebody who we normally associate with high tech at all. And he said at some point, I think at the end of his life, 'That I set out to be a farmer and I think I'm a would have made quite a good farmer. Yet I spent most of my adult life as a soldier under arms.' Anybody who knows Moshe Dayan you know - famous for the eye patch and so forth, a swashbuckling soldier even by Israeli standards - it's kind of hard to imagine that he would have liked to have spent his life getting up every day in the morning and milking cows and pitching muck out of the stables and so forth. But the fact is I think he was expressing a very true sentiment. He was the son of a farmer so he knew what he was talking about. But more than that he was an expressing a Zionist ideal of his generation which was a good future Israeli ...should be a farmer. That was the ideal of the time. The fact that he became a soldier by profession was reality of the situation, going back to the beginning of Zionism which was that the Jews were arriving we're not very welcome. But what I think he did in talking about these one in aspiration, one in reality, in fact has some bearing on the Israeli high-tech sector, in as improbable as that may seem.

David: It's because on the one hand you know Zionism became inseparably intertwined with military - and military became important part of the high-tech industry. The second about this farming aspirations for what it says about early Zionism and whole Zionist Enterprise as we call it. The fact is, Zionism was a political movement but it was also as it was envisioned by its early founders, certainly the young people arrived at the turn of the century in the years up to World War One, as a part of a big socio-economic transformation of the Jews. It was a conscious activity not simply to build a Jewish state but to build a new Jewish Society and even to build a new Jewish man or woman as the case may be. And that expression was going to come through principally through agriculture.

David: What I guess I'm starting off by saying is that the you know high tech economy that is Israel today began in a very unlikely place. It began in the area of the world that was an economic backwater and was born underdeveloped for many, many decades. But more than that, you know it will develop you will say under the shadow of war. And I guess the bottom line at the end of it is..it's not clear how Israel became what we know now in today's startup nation. So how do we go about understanding this process and how these promising origins resulted in what we know now is one of the world's leading high-tech economies.

David: So the way I want to go about doing that is to kind of begin with a sketchy history of Israel and Zionism. One that doesn't include the usual landmarks or milestones of Israeli Zionist history. Nothing about Zionist congress's or white papers and wars or terrorism anything like that. This is going to be a kind of hi-tech history. And it begins at the end of the 19th century. Okay the time when Western Europe and North America were industrializing and generating enormous wealth and technology. The rule of course in all these places was a kind of like a laissez-faire capitalism that as you're all familiar with. One of the results of the Industrial Revolution was a strong counter movement; the most famous one of course is Marxism and communism. At the end of the 19th century anarchism was also an important counter movement against the excesses of capitalism and Zionism. And there was of course nationalism as well, which might have been even a little bit of a backward-looking movement in the sense of trying to restore old values that seem to be undermined by industrialization and technology.

David: So you know for the Jews at this time. Most of them living in Eastern Europe or under Russian rule, the effects of industrial capitalism were very minimal. But nevertheless they were deeply affected by all these all this all these tendencies and not surprisingly at the time, Jews were living in poverty. They had no political freedom of any kind and there was a huge movement underway in the Jewish community to find solutions to the problem of the Jews. As it turns out, one of those of course was Zionism - the idea that Jews would pick up and leave and establish their own state in what was then Ottoman-ruled Palestine.

David: And very quickly that kind of Zionism developed into a kind of socialist Zionism. There were different strands certainly over the years. But the fact is a socialist strand was the one that ended up dominating the Jewish community in Palestine and going into Israel. How did this happen - we're talking now about people coming from Eastern Europe in the second and third ...those are the big waves relatively speaking. Big waves of immigration before and around World War One. Those people became the future leaders and built institutions that became the State of Israel. Long before there was a state there was a state in the making. One of the obvious institutions was the kibbutz; it's probably one of the best known ones, which combined socialism and agriculture and became the ideal for the community at the time.

left off 8:00

that word if you

were a good Zionist when you did if you

went to the kibbutz and or formed one

the other as it turns out because of the

security situation was the army

what did these people have in mind these

early settlers is they wanted to create

a almost a Marxist ideal of a town

proletariat state farmers and and

industrial laborers being the population

of course none of this was very

realistic but you have to understand to

the extent they willed it and the Jews

were coming from Eastern Europe had no

experience in farming or agriculture at

all they weren't allowed to own land

among other things so the decision to be

a farmer and to not even return to the

land to go than land a tour was

something revolutionary and wasn't

simply an economic decision was an

ideological one of the current Jews into

producers and the very fundamental kind

of way bear in mind we're talking about

the you know height of the Industrial

Revolution it was also very backward

looking in a certain way as well I don't

think anybody picturing their you know

their state in the mating making would

say well we want to be you know farmers

everybody wants industry and that was

the future nevertheless this was a very

important part of the design of this

movement and a very and important in the

sense that the movement wasn't just

about establishing a state of

establishing a new society establishing

a new kind of person and kind of willing

history as you want it you know even the

proletarian aspect of this early

scientism was an act of will of a

certain way Palestine in the first half

of the 20th century had no industry to

speak of but the early pioneers wanted

to create a working class so in lieu of

any industry in lieu of any capitalist

they formed first a labor union called

the history Jews which was another big

accomplishment of that era and his group

in turn formed started developing

industries to employ their union workers

again an active kind of will and the

most Appliance of

the order of things as they were and so

you know again think this is a very very

critical part of understanding the

entire Israeli mentality even these are

the high tech to the extent of which

Israel itself and the Zionist movement

and certainly in the pre state period

was a conscious effort to form a

particular kind of society that was

highly mobilized in the sense everybody

you know felt they belonged to it wasn't

you know immigrants just simply coming

to a foreign country or to better

themselves usually we were coming there

in order to build this new collective

vision an interesting development of

this period now we're talking you know

in the early twenties 1930s you know

tens of thousands maybe 150 thousand

people they know the entire Jewish

community in Palestine at the time was

tiny nevertheless and this is kind of

unforgettable slides here in an

important aspect

like very good their important thing

that your stand is that despite all this

focus on workers and farming they're

coming eternity to the land and so forth

there was a strong counter movement to

establish universities and again when

you consider the you know raw material

they had a tiny population and

undeveloped economy it all seemed

absolutely kind of crazy but the fact is

this was a another important trend of

that era I understand and also important

stranded kind of understanding the

origins of high tech in Israel in other

words the idea of academic research what

that you know comparatively sleepy way

back into Israeli history or a sign in

his history and became an important

strand some of this contradiction you

can see you know somebody like delete

that Gurion who is Israel's first Prime

Minister and kind of the George

Washington of Israel on the one hand you

know stride to be a construction worker

build roads which was a motor ideal of

the time and but the fact is he also had

a law degree we've got a fairly late in

life it was very very well read in other

words the idea that you were a worker

without an intellectual interest or

capabilities was kind of far into them a

contradictory but that's how things

worked ad Gordon was another leader of

the time you know which worked as a

hired farm and during the day in both

philosophy at night so this

contradiction in

his early Zionism was there from the

very beginning but you can see already

some of the said the strands that would

eventually lead from these kind of

seemingly on promising origins to what

we have today the estate of Israel

itself was formed in 1948 there was the

war of independence the industry that

there was an Israel at the time much of

it was destroyed during the fighting

what was important that was a human

talent was still there even the

universities survived the war Hebrew

University had finds itself on the wrong

side of the border and that we establish

itself inside what was then Israel but

the fact is classes continue and so

forth there was also a big wave of

immigration at the time the Jewish

population in 1948 was about 650,000

people in the next ten years or so

population more than doubled the other

important factor to consider was despite

the fact that Israel won the war of

independence established what didn't

establish its borders but it had

armistice and so forth with the

surrounding countries didn't solve the

fundamental problem that we were still

in a war footing the situation that

despite these two peace agreements or

three if you count with Palestinians

remains to the peace today and that

should also be considered a major major

part of the Israeli mentality going

forward in other words the idea that you

know the country situation is unstable

the army is a critical critical part of

this early life which I'll go into a

little bit more and you know that again

predates is founding of the state and

what it solved it all by by the fact

that Israel was an independent

recognized country given the situation

at the time the government's policy was

to continue the kind of socialist system

that existed in pre-state Israel that is

now there was a government and

mr. dude labor Federation but the fact

the matter is the policy was that the

government would decide what industries

is from the country needed where the

factories would be built how they would

be financed and so forth it would be an

exaggeration call Israel a socialist

country at the time but it was certainly

very state directed so that socialist

ethic that's that had gone back to the

early early years of Zionism prevailed

into the state period and I will already

even today his soul remains are very

strong a factor in his early life Terry

to the credit of Israel uterus at the

time economic growth was very very fast

those that was averaging like ten point

six percent per year during the 1950s

and 1960s that was I think the second

fastest rate of growth in the world at

the time after Japan but it was a

serious problem for the economy which is

that above and beyond the politically

precarious situation and the kind of

constant war footing

what's the fact is the economy had

nothing no particular competitive

advantage anywhere you know they tried

things like textiles chemicals and so

forth but in the end of the day was very

hard for a small country in a distant

part of the world to find any and with

not particularly low no without any

natural resources to speak of to find an

industry or any in many industries where

it could compete very well

so despite fast rates of economic growth

you know there was a limit to how far

the government could take the country by

the by the 1970s there was not a wealthy

country was a middle-income country an

important development came in 1967 that

was a year of course of the six-day war

but in terms of the high-tech sector

most critically the French government

who had been Israel's main arms supplier

imposed an embargo on future arms

exports

go one of the consequences was the group

of frigates that the French government

had built promised Senate Israel were

not delivered and Israel went ahead just

of them anyhow but that was the

long-term solution the long-term

solution was to build our own defense in

the street but we had a serious problem

in that respect is to build a defense

industry meaning tanks and guns and

warplanes and so forth assumes you have

a steel industry for instance and an

automobile industry that could produce

engines and so forth none of which

Israel had there were some exceptions

Israel for example does build a tank and

I think is the only country in the world

without a little real industry that had

the tank industry and even briefly tried

to build a fighter plane in the 1980s

called V which ended up being cancelled

because it was just not economically

viable what Israel did decide focus on

was communication electronics at the

time it was a practical decision that

without the heavy industry you needed

for defense

the fallback is to build things you can

build and because we have the history of

these universities and you know really

well-educated population who succeeded

in doing it is it turned out it was very

fortuitous to do this because those

industries those defense industries

became the basis for a high-tech

industry later on okay and we see that

you know the first generation of Israeli

technology was the telecoms and where

did this telecommunications expertise

come from came from the army you know

even unlikely things for instance one

new is really early Israeli startup in

the 1990s already was developed one of

the first via robot vacuum cleaners

didn't succeed which is not typical this

really startup companies but what's

interesting about it is where did the

technology for this vacuum cleaner come

from from guided missile technology you

know some ex-army guy said you know it's

good for a missile it's good for a

vacuum

and there are other examples another

company that developed the first camera

you could swallow and use it for

diagnosing intestinal ailments likewise

also came from missile technology so

here you have a situation you have the

military industry you have the economy

that the little directional list what

happens is yet another war follows in

didn't end with a great military victory

for Israel it was a bit of a disaster in

most respects we've won the war but a

great cost to the economy also in terms

of those in terms of human life and also

in terms of damage to the economy war

dragged on for many many weeks and a

small country like Israel we are every

you know all adult males are cold up the

cumulative effect of that was disastrous

what followed was what's now called the

Lost Decade for Israel where economic

growth with minimal inflation became a

very very serious problem with 400% at

one point the government was running

huge deficits the situation was not

sustainable

it all came to a end in 1985 where the

government undertook what's now known as

the economic stabilization program

without going to in the details about

that I mean it solved a lot of these

problems in terms of inflation and so

forth

what's that it basically was the death

knell for the socialist economy from

here on in the principle that you know

the government and the history Labor

Federation was running the economy with

a few entrepreneurs and capitalists on

the side

have to listen to government directives

that system went by the wayside and

exactly would be an exaggeration

equalities are Al hyper capitalist

economy although some Israelis think of

it that way but the fact is it's farm

what the private sector is far more

dominant than it ever was before rules

and regulations are much easier and

without this process it's unlikely as

that the tech industry could have gotten

off to its start a decade or so later

because the fact the matter is it's a

capitalist system you know regular rules

and regulations are

nemyt to it certainly in these early

contexts and certainly I think it's fair

to say that no government has ever

successfully introduced any kind of

major high-tech innovation to speak of I

never reported from my first book in one

of the places on Silicon Valley is

around the world and one of the places I

surveyed was India and you know here

were the you know bureaucracy at the

time and government dimension was nobody

you know it was immense you know put

Israel to shame in that level and you

know saying the reason why the tech

industry in India and the same applies

Israel as well was thriving was because

the government it was taken by surprise

by this they never tried to regulate it

because they didn't even know what was

happening until it was too late

and once I was telling me that the time

India had won a string of you know Miss

Universe contest and they say well

reason why India sneaks a well in beauty

contests is because the government is

involved in that either you know in the

minute they set up set up a Ministry of

beauty that'll be the end

is run of beauty queens the same applies

Israel as well even to this day the tech

industry is very very unregulated people

by you know certainly by Israeli

standards even by globally by American

standards I don't want to get too far

off the track but we're running into a

very serious problem now between America

and China you all are aware is a trade

war going on between Israel I'm sorry

between China and America right now but

it's also a technology war in fact there

are subject it gets much much less

attention the Chinese are committed

they've said as much to establishing

global technology leadership in key

areas like artificial intelligence and

needless to say America as the reigning

king is not too thrilled at this

prospect and you know Chinese will be

something a very serious threat oddly

enough in all of this Israel's the

sinner to be technology power to the

point that Americans have made quite

clear to Israel that you we cannot be

helping the Chinese to the extent we

have until now are we helping the

Chinese it's a little unclear because a

lot of what goes on is going on quietly

but the fact that is really sorry

Chinese companies are investing Israeli

startups you know Israeli Chinese

engineering college in China right now

and the Chinese are actually looking to

Israeli technology is to give them a leg

up in certain areas and so the Americans

are pressuring Israel to cool off the

relationship Israel of course is not

interested in doing that obviously China

is not becoming technology at world

economic power and they're not going to

be in a position to

cool relations with their so easily or

quickly so inside of this process the

government's been under pressure to

restrain a restrict foreign investment

that is Chinese invested into Israel and

the question is how do I see two

American demands without getting a

Chinese to upset and without you know

ruining the goose that lays the golden

egg so one area that was exempted from

foreign investment requirements was

hi-tech in other words if you're a

Chinese company that wants to build a

desalination plant or you want to buy a

food company or a chemical company now

you're gonna have to go through a

government committee like the Chinese

have to in America if you want to buy a

high-tech company that is not the case

yet Americans made the only decision was

only made about a week and a half ago

and it's not clearly you know Trump

administration will be too thrilled

about this but you get the idea is one

of the reasons that the government was

so hesitant to include high tech in this

is because the industry is so

unregulated and that regarded as one of

its secrets to have a government

committee looking at each and every

foreign investment that comes into the

country would be a bureaucratic disaster

for the industry and so it was exempted

so it's very important to understand

that on the one hand the socialist

system that prevailed in Israel for the

first 30 or 40 years was a detriment to

the high-tech industry and you know it's

removal was a critical factor in

allowing it all happen the other

important thing to understand is what

happened in the 1990s this everything is

not entirely dependent on what

Israel there were three major

developments globally the first was that

there was telecommunications

deregulation starting in America were

around in the 1980s remember or 1970s

the telephone industry as it was then

was dominated by AT&T; and a few small

companies in Europe a situation were it

was a government monopoly as in Germany

it was Telecom and France France Telecom

and so forth that system was disbanded

starting in America

the second major development was the

rise of the Internet certainly something

we are quite familiar with and the third

the third I can't quite remember right

now oh yeah I know just two sorry about

that

I'm fine a second where my list was what

did that mean for Israel well I'll give

you the story about a typical Israeli

company at the time it was one of the

first generation of tech company is

called ECI telecom and again using

military technology they had discovered

a way to double the capacity of a

telephone line simple copper cable for

phone conversations so you can imagine

here's this company nobody's ever heard

of coming from a country that nobody's

ever heard of except in the cases of war

trying to sell some technology to say

Deutsche Telekom you know this bridge

German company that only buys some

Siemens and I remember talking to the

CEO of ECI Telecom you know years later

and he said it was just hopeless you

know they could have meetings they could

do trials and no matter what they did

there's no way you don't tell accom

whatever buy anything from them and the

same would apply to France Telecom they

only buy from the French supplier and an

AT&T; only from Westinghouse and some

West

electric I'm sorry and so forth suddenly

all these monopolies disappear they're

now competing phone companies they don't

have any suppliers they have no

relationships and even the veteran

companies also realize they have

competition now they can't simply depend

on a single supplier and and their

monopoly and all of a sudden ECI telecom

gets a phone call from Deutsche Telekom

saying we're interested in your product

and from there everything took off first

generation Israeli companies the

internet you can imagine create an even

bigger reality for his early company

there was a whole new technology that

nobody even the old veterans had any

particular claim on as far as it goes

the Internet is a total free-for-all you

know it's not there's no operating

companies to speak of they're no

monopolies and these were two very very

big global developments that were came

at a critical time in this really high

technology just as the social system was

unraveling and and there was opportunity

to start companies in a way you couldn't

imagine doing 10 or 15 years earlier the

situation in Israel today as far as it

goes is actually quite really good

despite a very very difficult history

economic and political history

Israel's among the world's richest

economies and a GDP per capita basis

it's number 35 in the world which is

fantastic most of Europe is ahead of us

but not all of Europe number 22 and the

UN Human Development Index it's an open

economy with free trade agreements with

Israel with the US and the European

Union

exports are you know 30 percent of the

economy

again these are not spectacular numbers

but you have to understand given you

know where Israel is in terms of being

in the Middle East in terms of it's a

war footing over the years we've still a

very high defense and you know defense

spending is still a big big part of the

budget I think they part of the economy

people still do reserve duty

eighteen-year-olds go into the army and

lose a couple of good years of their of

their of their careers and so forth said

also the mass immigration and the need

to invest resources and you know big

population growth and also the fact that

Israel was diplomatically and

economically isolated during much of the

nineteen seventies and eighties during

that lost thick a textbook about I think

all of these are quite impressive

metrics on the whole so we're looking at

all this history and saying what's going

on here I think we can say that you know

in looking at the negative size you know

agriculture socialism war don't look on

the surface to be very promising

antecedents or high-tech economy

it's very nice university defense

industry in the 1990s it just like I did

neglect to mention there was some waves

of immigrants to the Soviet Union who

were highly educated and unfortunately

not necessarily educated and things in

the Israeli economy needed I remember at

the time they were awful lot of for

example metallurgists and forest

engineer forestry engine experts and

things like that but on the whole was

extremely well more there were more the

number of doctors in Israel doubled in

the space of like five years as a result

of that so that was all on the positive

side but if I look at the whole

situation say the metrics for a

high-tech economy were there but there's

nothing really spectacular if you go to

any European country certainly German

or written or so forth they had all

these things very good universities

educated population and so forth they

did an industrial base that Israel did

not have and yet look at the situation

today all these countries are struggling

to build a high-tech industry of the

kind that Israel has so outpacing growth

in Europe okay here is the high tech

industry rabbi Hillel Reagan on one on

one leg about every year 1100 to 1300

startups are formed that's in years of

spender and a per capita biggest spender

in terms of the percentage of the

economy on our D sometimes South Korea

beats us in some years but most years

were number one it's about four and a

half percent of GDP unfortunately I

don't have the figures for other

countries but it's two to three percent

range for most countries in terms of

patents per capita Israel's also one of

the you know has on a per capita basis

one of the highest rates and there are

about 300 or more multinational

companies you know IBM Microsoft Apple

and so forth that have research and

development centers in Israel which is a

testament to

innovation a company like Facebook you

know one set up an R&D; center has a

favorite anybody you only do it if they

feel like there's the human talent there

that's going to contribute when in fact

detail about that let's now get to the

crux of high tech in Israel and that's

the phenomenon the startup company just

to say a few words about what that is

it's very critical to have a firm

understanding of it a start-up company

is a business that's begun to develop a

new product or service and backed by

speculative capital which is really cool

venture capital its value is usually in

the human resources other words it has

very few little weighing equipment has

to know you know it doesn't have any

mining rights or anything like that

its values and the people who work for

and their and their human talent the

focus is on are indeed of course because

you're starting from scratch and on

constant innovation now Israel didn't

invent the concept of a startup company

and that it goes back to Silicon Valley

here in California in the 1970s well we

can say and this is very critical to

understand that when the startup

phenomenon did gain momentum in America

it caught on in Israel very quickly the

first companies were already in the late

it acknowledged phenomenon and to the

point that you know California has

Silicon Valley in Israel we're known as

startup nation there's a bestseller nine

years ago with that title and it's going

on to the point now and I think that's

very important to understand that

Israeli technology is about startups

that might seem self-evident but it

really

because if you go to Silicon Valley

there are of course plenty of startups

but there are plenty of companies like

Google and Facebook Intel and so forth

these are companies that are you know

won't cease to be startups and they are

publicly traded they're worth billions

of dollars they employ tens of thousands

of people and so forth so the question

is when I talked about you know

developments globally the internet

telecoms deregulation you know these

things happened outside of Israel's

borders certainly as I said before

internal changes in Israel that enabled

the high-technology sector to take off

but the fact is there were major

external ones as well external to Israel

and the question is how did Israel

capitalize on this when a lot of other

countries you know should have been able

to failed or certainly to succeed to the

extent that Israel thing in my argument

is that it really lies more than

anything else more than the issues about

regulations and rules or taxes and so

forth is in Israeli culture or a close

social trace and it's very critical

understand this because if you go to

Silicon Valley and there are statistics

about this look I'm barely nobody says

that you know the area of south of San

Francisco the people there had any

special abilities or came from and you

know had any special background that

made them particularly good at starting

up companies and innovating and

developing high tech Silicon Valley drew

people from really the four corners of

the world and it's at us today and if

you look at statistics the number of

immigrant entrepreneurs in Silicon

Valley is immense it's not even an

American phenomenon in other words

people with those kind of talents and

those kind of traits or gravitate

towards Silicon Valley in Israel that's

not the case at all

startup nation phenomenon in Israel is

holy Israeli there are almost no

foreigners of any kind they are till

very recently and the government didn't

particularly encourage you know there

was no entrepreneurial visas or anything

like that and so you have to look and

see what it was that happened in Israel

it wasn't as if Israel was drawing

people from around the world with with

those traits those were all internally

developed or it came from inside Israeli

culture and at the risk of being a

little simplistic I've kind of boiled

them down into four things and any of

you will visited Israel will immediately

recognize a lot of them because it's not

just they manifest themselves and

startup companies and then have sets

themselves when you try to get service

at a restaurant or get into an argument

with somebody who won't you know won't

let go so the first one is a distaste

organization hierarchy and rules so

you'd say here's the country whose

antecedents or social antecedents were

socialist people serve little things in

the army which is you know very

hierarchical normally my argument is

first of all facts are out there if you

look at this related not very good you

organize anything but the important

thing to understand is that the

socialism that developed in the early

Zionists days was the kind of bottom-up

movement

it wasn't top-down you know I'll use the

key books as an example you know when

Stalin collectivize farms in the 1930s

nobody heated nasty craniums rows if

they wanted to and they weren't given

much leeway and how the farms we're

going to be organized to blue the

gunnard water and that was the end of

that the kyboots is an institution while

had you know an official status was very

much the work of people who got together

and said we're building two key books

and once they people to establish it was

very very democratic it was an inn

and the other key would seem right and

so the social except those was not very

harder article the wall I would go as

far as to say that that applies to the

army as well if any of you have any

experience with the Israeli army its

Army's Hill it's extremely unmarshal and

and what we'll leave it at that for time

being the second factor is a strong

culture of teamwork and group loyalty

which is the obvious outcome of this

kind of Israeli brand of socialism when

I first came to Israel many many years

ago I was very taken at the very

beginning how this concept of louche was

so critical to Israeli society which

means which was kind of crystallization

or getting together so you know your

child and in first grade it's important

that there's a class spirit you know the

class thinks of themselves as a team

it's something you don't really see in

America at all and that kind of fo

extent obviously to the army as well in

the workplace it's also considered very

important you're not just employee of

the company you're part of the team of

people you're working with

and in the tech world isn't very very

important I think there's a kind of how

common is any longer myth that you know

the innovation is you know some lone

genius working in a laboratory or in

front of his computer late into the

night that's not how much innovation

occurs now it involves people from

different with different skill sets and

different kinds of knowledge getting

together

and working together and that's a very

very strong Israeli talent you see that

in a lot of startups that are drawing

from different areas of expertise

another manifestation of that is a

turnover rate for the early tech

companies is very low which people don't

look at themselves as independent

operators and you know barking in a

career of every sort willing to offer me

better terms or a higher salary I'll

jump ship and move there

you know what happens of course deny

that but it happens a lot less because

people feel that they are simply working

for an employer they are part of the

team the other thing which is an obvious

outcome of this of Israeli history is a

very strong stomach for mistaking you

know high tech is certainly in the

startup that's what it's all about

you've got to be able to convince people

entrepreneur certainly of investors that

you're going to basically take a big

gamble on something entirely new

like maybe compare it to the restaurant

business you know people are opening

restaurants all the time a lot of them

fail but the fact is the restaurant

business is well known you know you have

a menu you have a location you have an

ambiance and like that a name and so

forth it's a known business there are

ways of going about doing it nobody

normally and the restaurant business

thinks about doing something entirely

new that's not the case with any startup

is you're starting from absolute zero

there are ways of course of developing

new and innovative technology but the

fact that usually what you're doing is

trying to do something wholly from

scratch and so the risk reward is any

venture capitalists will tell you is

very difficult in other words if you see

you would succeed enormously but more

likely you're going to fail and so you

need that kind of culture I think it's a

problem in Europe

they have a much more stronger economic

base in the words of your talented

engineer there are plenty of

opportunities to work for big companies

you know collect your salary do very

interesting work have very good

conditions and retire with attention and

so that's a big deterrence to getting

people who might be able to start up a

company and might be able to do original

innovation to go ahead and do that the

other important thing is a strong

orientation toward problem solving and

completing tasks which I would say is

the polar opposite of organization

whereas Raley's excel is giving them a

goal you know if you're in the army

conquered that hill if you're in a

startup company and we need to get the

bait out in three months or something of

that nature when you ask them to come in

and do a routine of work you know we

need to send out certain amount of the

accounts receivable every day and so

forth that's where things start pulling

apart I'm not very good at that

and again I think that goes back to

historical antecedents you know the

Zionism was a project every step of the

way was regarded as a mission but when

it comes to the routine of you know

taking care of things efficiently in an

organized way that's where things in

Israel kind of slip up again this is

very helpful for the startup being in

the startup phenomenon as we'll see it's

not very helpful for the economy in

general if you want to get a deeper

understanding of this I highly recommend

a book which is actually available in

translation called the Sabra the

creation of the new Jew by a log and he

goes into great detail about how these

values were instilled in Israeli society

going back to the 1920s and 30s he

doesn't relate it to high-tech but the

fact is if you you know read the book

you start seeing the connection very

very quick

as I said you know the whole science

enterprise in a certain way it was like

a big startup company in the sense of

very mission oriented task oriented not

very organized all the time very much a

case of people taking initiative on

their own and so forth and this is a

value that something very very

fundamental to Israeli society one way

you see that its values against

particular skills in other words as I

said before Israelis are well educated

they very good universities and so forth

but there's something bigger than that

there's something about an innovative

drive and one of the ways you see it is

in the evolution of high tech and the

very beginning is like said

telecommunications was the be-all and

end-all of high tech and Israel was the

beginning of the internet and that's

where all the action was and remember at

the time a lot of people were saying

well you know the simple reason for that

you know the Israelis are taking all

this technology from the Army and

they're employing it in civilian

applications and that'll be the end of

it that didn't happen as it turns out

those innovative skills and I don't mean

strictly engineering skills but the

whole process by you know these four

traits I spoke about are applicable

almost anywhere in high tech so we have

the example now that one of the hot you

know industries in Israeli high tech is

self-driving cars or Auto Tech and so

forth which runs a whole gamut of

technologies from the actual technology

of self-driving car is to Internet

Security for cars and so forth and you'd

say you know like the story of the tanks

you know how is Israel happen oh tech

industry without any automobile industry

what the fact is what we'll be able

technology if nothing to do with

automobiles and the internal combustion

engine

much to do with digitization and so

Israeli talents in digitisation simply

apply are being applied to the mobile

industry now you know the same ways

being applied to financial technology

and so forth now it's spoken about the

RV's contribution in terms of the

defense industry and that was certainly

very important in that respect but I

think what's more important in terms of

the army and high-tech is the actual

army experience itself that's the one

okay I think most people you know got an

impression of army service which is

probably correct in most cases is you

know you're going into this you know

hierarchical system you Aloma server

you're a uniform you have a rigid

schedule for your day and so forth which

is to a degree true in the Israeli army

but not nearly to the degree I think

that you've seen in other ones I think

there's a big element of of high tech

values that are transmitted by the army

young Israelis in other words a lot of

these kind of suburb values and these

four traits I've spoke about are

certainly things that people see when

they are experienced and they grew up

but here you have a situation where you

turn 18 and you're bought into the army

where these values are still very very

seriously in a very sensitive time of

light in other words is the first time

you're away from your your family first

time is here you know you really in the

world as an adult and so the Army's in

there is unique

position to instill certain values which

it does bear in mind you know today that

you know in Israel there's still a

universal draft by no means everybody

serves but among the core group of

Israelis that were not ultra-orthodox or

Israeli Arms the rate of enlistment is

our draft is very very high

and so it's really almost a national

phenomena the kind of experience that

almost everybody in mainstream Israeli

society goes through in one way you see

that is in the top left-hand quadrant

here the percentage of people who did

army service who were employed in the

high tech industry only 10 percent

didn't serve when you consider there are

a fair number of immigrants and people