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Innovation Nation: Israel

As America struggles to get its mojo back as a preeminent center of innovation and thereby prosperity, metropolitan and national economic leaders would do well to study the case of Israel. Israel? Yes, Israel. As Dan Senor and Saul Singer make clear in their bracing new book Start-Up Nation, Israel is a country of just 7.1 million people that may well be the world’s top techno-nation, yet in a way that has huge relevance for those thinking about America’s renewal.

In the face of war, internal strife, and rising animosity from other nations, this embattled sliver of sun-baked desert has flourished as a technology hub. The country boasts the highest density of start-up companies in the world, with a total of 3,850 now operating at a rate of one for every 1,844 Israelis. In 2008, the nation attracted more than $2 billion in venture capital in 2008, as much as flowed to the U.K.’s 61 million citizens or the 145 million people living in Germany and France combined. And for that matter, some 63 Israeli companies were listed on the Nasdaq in 2009, more than from any other foreign country, including Canada, Ireland, the U.K., Singapore, China, or India. Nor have the wars Israel has repeatedly fought slowed the country down. Since 1995, Israel’s broader economy has grown faster than the average for the world’s developed economies. During this decade, the Israel’s share of the global venture capital market did not decline--it doubled, from 15 to 30 percent.

How has this come about? In part Senor and Singer attribute some of this dynamism to a number of unique cultural characteristics, ranging from a tolerance for “constructive failures” to an “antihierarchical ethos” and penchant for “bottom up” debate, jury-rigging, and responsibility-taking. Also distinctive is the powerful cultural contribution of mandatory service in the Israeli military, which Senor and Singer believe inculcates through broad and deep training a focus on “adaptive problem solving.”

Yet beyond those place-specific features one might notice that that in many respects Israel has followed a playbook of some pertinence to U.S. renewal. Israel, in this respect, has tended smartly to the inputs of innovation, much as the Metro Program has urged U.S. metropolitan areas to do, and then crafted a heady, networked environment in which entrepreneurs can put it all together. Top-notch universities were founded well before there was even a state and there was an early focus on the commercialization of academic discoveries. No nation spends more on R&D as a percentage of the economy. And for that matter, Israel has pursued since its founding an extremely liberal immigration policy that has boosted the nation’s human capital stocks hugely, not least with the massive influx of talented migrants from the republics of the former Soviet Union in the 1990s.

But in addition to all of that, Senor and Singer point to something else: the fact that Israel has made itself, particularly in technology areas, into a “classic economic cluster” of the type Harvard Business School professor Michael Porter has defined and the Metro Program has deemed fundamental to regional economic growth, whether urban or rural. Along these lines, Senor and Singer suggest that Israel has drawn into a single narrow place a particularly intense concentration of people “working in and talking about” technology industries amid a “tight proximity of great universities, large companies, start-ups, and the ecosystem that connects them—including everything from suppliers, an engineering talent pool, and venture capital.” Going further, they suggest that these proximities, combined with the flow of military R&D into cutting-edge systems and the spillovers from such work, have produced “exponential growth” thanks in part to the “everybody-knows-everybody” density of Israeli business, military, and social networks.

In that sense, while Israel is hardly a replicable model for a vast and very different continental nation, “Start-Up Nation” points in certain directions—for the nation and for its metros. Tend to innovation and human capital inputs, the Israel story seems to say. Foster a culture of tolerance, practical problem-solving and active debate. And by all means seek in discrete, confined regions to construct and foster rich, complex, hyper-networked clusters of interconnected institutions, driven people, of common interest.  It is to the latter work of cluster building that we hope the House-Senate conference committee on the pending Commerce-Justice-Science (CJS) appropriation bill will soon attend by funding a truly valuable federal innovation clusters initiative. Dynamic regions must lead, but the federal government can nudge and help.