One might expect Start-Up Nation: The Story of Israel's Economic Miracle to come from the pen of business school or economics professors, but the biographies of authors Dan Senor and Saul Singer reveal policy backgrounds. Both were advisors in the U.S. Federal Government.

These backgrounds give a clue that Senor and Singer aim beyond questions of how to be a successful entrepreneur or high-tech executive. In fact, their book is a serious investigation of the social, historical, and psychological traits that produce extraordinarily creative people--and significantly, creative people who can translate their cranial light-bulbs into technologies with the potential to change the world.

The book has garnered a fair amount of news coverage, but still not as much as it deserves, in my opinion. It took me only about three hours to read, and I highly recommend it as a refreshing--but not necessarily reassuring--perspective on a country that is profoundly misunderstood and misrepresented by media outside its diminutive borders.

In this blog I'll summarize the traits that that the authors find make Israel a successful incubator for innovation, distinguishing between traits that other countries can emulate and traits that seem uniquely embedded in Israel's historical and geographic circumstances. Finally, as I usually do in these book reviews, I'll lay out three observations that came to my mind while following the authors' argument: the importance of hard data, flipping axioms, and the creative role government can play.

Israel's stunning performance in world markets is beyond argument. The country lists more companies on NASDAQ than India, Japan, South Korea, Singapore, and all the countries of Europe--combined! (I originally included China in this list, but that was based on outdated information: it now has a lot of high-tech companies, as you can see from the comments at the end of the blog.)

Venture capital flows into the country. It's often noted that technically trained Israelis emigrate, but less often reported that many of them return and spectacularly exploit their international connections. And because investment is based on technical progress instead of clever financial book-keeping, Israel has weathered the current recession with some decline in revenues but not a single bank failure.

Start-Up Nation claims to reveal the reasons behind the success of this country that not so long ago was considered a victim of quasi-socialist stagnation and crippling costs related to war and violence. Some of the authors' observations have been made before--such as the importance of forcing young people to take serious responsibility in army service, and the value of accumulating highly trained immigrants from Russia and other places--but these observations have previously been oversimplified and leave out what Senor and Singer consider crucial inputs. Start-Up Nation not only tries to restore the proper balance and show traits from a more productive perspective, but integrates them into a comprehensive picture of a churning economy.

• Traits that other countries can emulate
• Traits unique to Israel's history and geography
• The importance of hard data
• Flipping axioms
• The creative role government can play

Traits that other countries can emulate

Although Israel has special advantages, some of the elements to which Senor and Singer trace its innovativeness can theoretically be achieved elsewhere. Briefly, these are:

• A loyalty to the entire community that goes beyond personal success. The authors point out that, for all of Israelis' notorious fractiousness, they expend enormous effort helping total strangers. All of Israel is a single team, even a single family. (Obviously, this family feeling does not extend to non-Jews.) Israeli entrepreneurs who give talks abroad often play up the strengths of their country as well as their company.
• A sense of dissatisfaction. To innovate, one must be convinced that things are not good enough the way they are now. For Israelis, this drive for change has both Biblical and more recent historical roots, but technology provides a new arena rewarding hopes for improvement.
• A Do-It-Yourself approach to technology, which perhaps is one manifestation of the afore-mentioned innate dissatisfaction. The authors report that equipment purchased by the army is always being tinkered with. The same interest in taking things apart and jerry-rigging them extends throughout the culture.
• A culture of challenging authority. The authors point out that this is a deep cultural value (and like many before them, trace it partly to the Jewish intellectual tradition), one that is particularly hard to foster in countries with controlling regimes.
• A determination to succeed against all odds. Countries that get complacent and rest on their laurels--as most observers think North Americans are doing--eventually lose their privileged places. The authors highlight fascinating stories of Israelis keeping up production in the face of war, and of cheerfully taking on seemingly impossible challenges.
• Interdisciplinary agility. Israelis tend to learn many skills--partly to survive in the armed forces--and to form companies closely linking people with different areas of expertise. In an age where many challenges require mashups between disciplines, this imparts a strong advantage.
• A tolerance for failure. Like the Silicon Valley, Israel is a place where someone can start a company, manage it through bankruptcy, and then pick up to start another company. A single failure, the authors say, gives the entrepreneur a high chance of succeeding at the next venture. Even in the military, people are rewarded for tackling problems with creative intelligence--not so much for the ultimate success or failure of the attempt.
• Providing young people with arenas to exert responsibility. In Israel, of course, this arena is its unusually unhierarchical armed forces (and people who don't do army service, such as Arabs and the ultra-orthodox, miss out on critical experiences). But other countries could find other ways to challenge youth in situations where taking charge is a must and where results really matter.
• A fruitful mentoring relationship between venture capitalists and new entrepreneurs. Injecting money into new ventures (as so many countries do) is not enough; the managers must be guided through the shoals of financial, technical, and human resource challenges. Israel set up a unique program called Yozma in 1993 to bring together all the necessary elements.
• Government policies friendly to startups. Israel has a decidedly mixed history here. Even after making a historic turn away from government control and toward a free market, its environment is most helpful to computer and high-tech companies. There are certainly innovations in many other areas--notably agriculture--but the authors say these fields encounter hampering regulations.
• A truly open-arms approach to immigrants, who bring not only fresh perspectives but a high tolerance for risk. Once again, of course, Israel's liberal attitude toward immigrants applies only to Jews (and a lot of haggling goes on around deciding who qualifies). Even for Jews, it can take a long time to assimilate waves of newcomers and turn them into productive employees. But countries that don't make it easy to set down roots suffer economically. Short-term foreign workers never form the sustainable innovative institutions that can be planted by truly committed immigrants.

Traits unique to Israel's history and geography

Israel also possesses unique traits that the Senor and Singer draw in to explain its entrepreneurial success. No other culture has undergone thousands of years of persecution culminating in genocide--nor should that be a necessary price. But it's amazing how Israel has turned its liabilities into assets, and these lessons can be inspirational for people suffering in other parts of the world.

• The country's regional isolation (boycotted by all its neighbors) and its small size has forced it to think internationally from the start. Israelis are also avid travelers, gathering up experiences that allow them to think creatively.
• Demographic diversity is another trait that has many negative repercussions, but that the Israelis have also mined for its strengths. New ideas always seem less odd in a culture where one has to get along with different types of people.
• A long intellectual tradition encourages a love of learning that extends to worldly accomplishments (although I have to point out that the same tradition contains many rabbis who railed against the study of mundane things); just as important, it encourages students to examine and re-examine every idea from new points of view--effectively making them ask constantly what would result if something obvious were not true. I will explore this intellectual attitude in the section Flipping axioms.
• The tight-knit society leads to a situation where "everybody knows everybody" and one can easily find the right mix of staff for a new company. (I wonder whether this cliquishness extends far beyond the economically dominant ethnic group--the Ashkenazi Jews, who trace their ancestry to Northern and Western Europe.)
• The constant existential threat posed by attacks and bombings call for hair-trigger creativity. It's worth noting here that the authors present Israel's response to war and terror in a consistently heroic light (along with recognition that they sometimes screw up). But the authors note that every engagement is followed by an assessment to determine what could have been done better.
• The small size of the population (further reduced, as I noted earlier, by deferrals for the religious and for Arabs) forces each army recruit to take on responsibility right away.

The importance of hard data

At this point I will delve into some more subtle threads that I see running through the book.

The first is the importance of accumulating evidence to build a case for change. Two incidents from the book illustrate this nicely:

• Israel's Intel facility, which invented the historic 8088 (and would later invent the Core 2 Duo) faced its biggest uphill battle when it approached its parent company to propose the principle behind the Centrino. Senor and Singer note that Israeli staff flew into Intel headquarters insistently to talk about the advantages of the new design--and seemed to deal with management resistance by increasing their own pressure. But it's important to note that they accumulated data to prove the superiority of the design. Mere persistence would probably not have carried the day.
• An Israeli company called Fraud Sciences pitched a system for identifying untrustworthy customers and vendors to a manager at eBay. The manager was adamantly unwilling to believe that this tiny group of developers could do a better job than all of eBay's experts, and the founder of Fraud Sciences was not a good salesman. Luckily, eBay had a low-risk, low-cost way to test the start-up: eBay would give information about one hundred thousand customers to Fraud Sciences and compare their analyses to eBay's analyses as well as the subsequent history of those customers. Fraud Sciences passed the test with flying colors and ended up being bought by eBay. There was no way even the most determined cynic could argue with the facts.

We now see data-crunching brought right into the development process, as with a process called "predictive drug development" practiced by the Israeli company Compugen.

Flipping axioms

I mentioned before the oddly subversive style of the Jewish intellectual tradition. I call it flipping an axiom: find the key trait that holds back change--a trait that no one has challenged before because it seems unassailably true--and ask "What would happen if it were false?" This is a kind of non-Euclidean geometry of thought. Two examples of this thinking at work in Israel include:

• The Centrino project at Intel, mentioned in the previous section, required overturning a tautology accepted throughout a whole industry and customer base. The problem they were facing was that increases in chip speed led to increases in heat dissipation. Laptops with advanced processors could not be designed because the build-up of heat would destroy them.

  So the Israeli team asked: what if we sped up processing without increasing clock speed? To give an indication what a radical thought this was, consider that U.S. Intel management rejected the idea because they had build their entire marketing strategy around clock speed. Clock speed had become the universal measure for computer performance. The Israelis threw out the assumption, found a solution, and sold it to management--and the world.

• Start-Up Nation begins appropriately enough with the well-known innovator Shai Agassi, who wants to create a network of battery replacement stations to support an infrastructure of electric cars. The basic elements of the plan had all been thought up by auto manufacturers already and rejected as unfeasible. But Agassi found a promising way to cut through the difficulties (although it has not had a chance to be tested yet in everyday use).

  The key to Agassi's thinking, as presented by the authors, was to assume that cars had to stop using fossil fuels. The world is running out of them. Agassi rejected other options such as hydrogen and hybrids, so he decided cars must be electric around the same time manufacturers decided they must use gasoline (although other options such as ethanol are also being explored). Taking electric cars as an axiom, Agassi found all the other propositions to make cars work.

The creative role government can play

I'll end by exploring the positive role of government in Israel. Entrepreneurial government is just as important as entrepreneurial business--but it must do different things. In this regard the Israeli experience matches up somewhat with the positive role Nandan Nilekani proposed in Imagining India, which I reviewed a few months ago.

In the early years, the Labor government kept a firm hand on the economy. The authors suggest that this worked well in the Israel of the 1950s and 1960s, an underdeveloped country needing obvious infrastructure investments. When the country reached a higher level calling for more complex economic relationships, the socialist bent became dysfunctional. (Many economists have found similar trajectories in the Soviet Union and Maoist China.) It was time to retract, so to speak, to permit more creation.

The authors enthusiastically endorse the Chicago School shock treatment carried out by the right-wing Likud government that took over in the 1970s. They don't mention the troublesome income gap created by this turn to the markets, but it does seem to have unleashed the innovative capitalism that has made Israelis relatively affluent for their part of the world, and an attractive location to work for Jews as well as non-Jews from elsewhere.

The government doesn't make direct investments, but to some extent it chooses winners--hooking them up to external investors--through the Yozma program mentioned earlier.

Like all governments, Israel promotes R&D through the military. But it provides on particularly interesting kind of government incubator: Talpiot, an intensive multi-disciplinary training program for promising young recruits.

Talpiot looks over the entire eligible high school population and aggressively encourages applications from the people it believes will make the most creative problem-solvers. It puts them through basic training as well as a technical academic program, and assigns them quickly to real-life problems. The training goes on for forty-one months, and the recruits are required to stay in the military for six more years.

Most Talpiot graduates leave the armed forces when their required six years are up, and this is seen as a strike against the program by its critics. But the authors point out that these highly trained, highly practical experts go on to apply their skills in private industry, so the government has effectively provided an elite corps for the country.

Israel certainly faces problems that technology and organizational savvy cannot solve. But its political, economic, and cultural successes have made it a model for other developing countries--none more than the Arab nations, who are trying to emulate it in many ways. Start-Up Nation is surprisingly broad and deep, for such a short book. I'm persuaded that it has unraveled many of the mysteries behind Israel's business success. And it does its best, in a very uncertain world, to suggest how both Israel and other countries could replicate that success.