Start-up Nation

Large organizations, whether military or corporate, must be constantly wary of kowtowing and groupthink, or the entire apparatus can rush headlong into terrible mistakes. Yet most militaries, and many corporations, seem willing to sacrifice flexibility for discipline, initiative for organization, and innovation for predictability. This, at least in principle, is not the Israeli way.

Eiland suggested that the IDF should consider drastic measures to reinforce its classic antihierarchical, innovative, and enterprising ethos. “Is it correct or even possible,” he asked, “to allow lower-ranking officers to plan and lead current security operations with less control from above in order to prepare them better for a conventional war?” (emphasis added).¹⁸

The 2006 war was a very costly wake-up call for the IDF. It was suffering from an ossification and hollowing out that is common among militaries that have not been tested in battle in a long time. In Israel’s case, the IDF had shifted its focus to commando-style warfare, which is appropriate when pursuing terrorist groups, but had neglected the skills and capabilities needed for conventional warfare.

Yet the Israeli reaction was not so much a call to tighten the ranks as it was to loosen them: to work harder at devolving authority and responsibility to lower levels and to do more to encourage junior officers to challenge their higher-ups. This radical push, moreover, was seen as one of restoring the “core values,” not liberalizing them.

What does all this mean for a country like Singapore, trying not just to emulate Israel’s military structure but to inject some of Israel’s inventiveness into its economy, as well? As noted above, Singapore differs dramatically from Israel both in its order and in its insistence on obedience. Singapore’s politeness, manicured lawns, and one-party rule have cleansed the fluidity from its economy.

Fluidity, according to a new school of economists studying key ingredients for entrepreneurialism, is produced when people can cross boundaries, turn societal norms upside down, and agitate in a free-market economy, all to catalyze radical ideas. Or as Harvard psychologist Howard Gardner puts it, different types of “asynchrony . . . [such as] a lack of fit, an unusual pattern, or an irregularity” have the power to stimulate economic creativity.¹⁹

Thus, the most formidable obstacle to fluidity is order. A bit of mayhem is not only healthy but critical. The leading thinkers in this area—economists William Baumol, Robert Litan, and Carl Schramm—argue that the ideal environment is best described by a concept in “complexity science” called the “edge of chaos.” They define that edge as “the estuary region where rigid order and random chaos meet and generate high levels of adaptation, complexity, and creativity.”²⁰

This is precisely the environment in which Israeli entrepreneurs thrive. They benefit from the stable institutions and rule of law that exist in an advanced democracy. Yet they also benefit from Israel’s nonhierarchical culture, where everyone in business belongs to overlapping networks produced by small communities, common army service, geographic proximity, and informality.

It is no coincidence that the military—particularly the elite units in the air force, infantry, intelligence, and information technology arenas—have served as incubators for thousands of Israeli high-tech start-ups. Other countries may generate them in small numbers, but the Israeli economy benefits from the phenomena of rosh gadol thinking and critical reassessment, undergirded by a doctrine of experimentation, rather than standardization, wide enough to have a national and even a global impact.

PART III

Beginnings

CHAPTER 6

An Industrial Policy That Worked

It was not simple to convince people that growing fish in the desert makes sense.

—PROFESSOR SAMUEL APPELBAUM

THE STORY OF HOW ISRAEL got to where it is—fiftyfold economic growth within sixty years—is more than the story of Israeli character idiosyncrasies, battle-tested entrepreneurship, or geopolitical happenstance. The story must include the effects of government policies, which had to be as adaptive as Israel’s military and its citizens, and suffered as many turns of fortune.

The history of Israel’s economy is one of two great leaps, separated by a period of stagnation and hyperinflation. The government’s macroeconomic policies have played an important role in speeding the country’s growth, then reversing it, and then unleashing it in ways that even the government never expected.

The first great leap occurred from 1948 to 1970, a period during which per capita GDP almost quadrupled and the population tripled, even amidst Israel’s engagement in three major wars.¹ The second was from 1990 until today, during which time the country was transformed from a sleepy backwater into a leading center of global innovation. Dramatically different—almost opposite—means were employed: the first period of expansion was achieved through an entrepreneurial government that dominated a small, primitive private sector; the second