Israel – Such a Complicated Corner of the World…

As I reflect on a head-spinning five days in Israel last week, it struck me that for all that is going on around that country, people seem remarkably poised and operate with such grace. Next to the lead article in The Jerusalem Post about the delivery of two F-35 jet fighters (which was very big news, maybe in part because they were six hours delayed due to fog – really?) was an article discussing the Health Minister’s announcement imploring the public to refrain from eating donuts during Hanukkah because “there is no need for us to fatten our children.”

The phenomenon of the “Start-up Nation” is well-chronicled now, which does not make it any less impressive whenever witnessed firsthand. Since 2012, it is estimated that there are approximately 1,100 start-ups created each year; on average, over the last four years nearly $4.4 billion of venture capital was invested in Israel. In 2015 there was $148 billion venture capital invested globally which means that Israeli entrepreneurs captured 3.0% of the total dollars; this for a country of 8.6 million people which is only 0.12% of the world’s total population of 7.4 billion. Civilian R&D is 4.3% of Israeli GDP. According to the Mr. Avi Hasson, the Chief Scientist of Israel, he has closed more than 70 bilateral R&D agreements worldwide. He also shared that 21% of the population is Israeli Arab and that he is committed to improving upon the fact that they only account for 3% of all Israeli IT jobs.

There were two other announcements last week that were striking and frankly quite unexpected, and underscored how impressive the progress is despite profoundly challenging structural issues. More than 2.4 million (or 29%) Israelis live below the poverty line per the 2016 Alternative Poverty Report. Separately, but arguably related, the Organization for Economic Cooperation and Development (OECD) announced the same day that Israel has a poor record fostering non-tech small and medium-sized enterprises (SMEs), which account for a surprisingly 99.8% of all companies in Israel. The OECD noted that Israel has the largest share of early-stage venture capital funds as a percent of GDP of any country, and other than Korea, invests at one of the highest R&D rates globally. Importantly, the OECD also observed that the lack of government financial incentives and training programs account for the disappointing labor productivity in the non-tech sector.

The Israeli tech sector is unrivalled. Specific areas of expertise include healthcare technology and cybersecurity, and both reflect the needs and challenges of this part of the world. Two healthcare announcements last week were notable. Tel Aviv University’s School of Psychological Sciences published fascinating research supporting important advances with virtual reality technologies in the field of physical rehabilitation. A few days before that, the University of Haifa released two studies that supported the calming power of work and sticking to a routine. Given the painful geopolitical issues surrounding Israel, the phrase “necessity is the mother of invention” never seemed more appropriate.

Notably, The Jerusalem Post also ran an editorial last week bemoaning the fact that Israeli school children chronically rank quite low on standardized testing when compared to other OECD countries (ranking 16^th and 19^th in mathematics and sciences, respectively). The piece goes on to attribute this phenomenon to two fundamental issues, both of which are controversial: low quality of teachers and number of disadvantaged Israeli Arabs. Like many other parts of the world, issues of societal bifurcation play out in painful and unfortunate ways.

A week later, I am most struck though by the overwhelming geopolitical complexities. Tel Aviv is only 132 miles from Damascus (Boston is the same distance to New Haven, well before you even get to New York City). Aleppo is 314 miles away. This is a very tough neighborhood, arguably made even more complicated by the recent naming of the US Envoy to Israel who has publicly disavowed the two-state solution. Every day the newspapers ran heart-wrenching stories about the devastation unfolding on every one of its borders. Good thing that the extraordinary work being done in the Israeli tech sector can be calming.