Israel contains more start-ups per capita by an impressively large margin, and in itself has more companies listed on the Nasdaq exchange than the entire European continent. This is even more incredible in light of the fact that Israel is a relatively small country, surrounded by enemies, and with limited natural resources. This begs the question: what propelled Israel to such economic success?

There are numerous catalysts for this growth that are irreplicable; that is, they are unique to cultural, historical, and sociological elements of Israel’s development. These will be listed below.

Foreign Aid

Foreign aid to Israel begins as far back as 1952 (4 years after Israel’s founding) when West Germany started paying reparations for war crimes committed in WWII. Thanks to these reparations and large amounts of American aide, Israel’s GNP grew by an average annual rate of more than 11%, giving Israel the income to fund an expansive welfare state.

Immigration

Israel has experienced one of the most prolific levels of high-skilled immigration in history, primarily because of its position as a haven for persecuted Jewish minorities. These immigrants have been highly educated, which can explain in part why a full 46% of Israelis are university educated (the second highest percentage in the world). This has powerfully contributed to the massive scale of research and development as well as technological innovation in Israel over the last 30 years, and could in large part explain why Israel has the 3rd highest number of patents per capita in the world.

Military Research & Development

Israel spends 4.5% of its annual GDP on research and development, which is the highest in the world. Of that, 30% goes specifically to military research and development, which is the highest percentage of spending on military research and development in the world by a factor of four. This, in tandem with other previously mentioned factors, likely explains why Israel has the most substantial amount of technology-focused start-ups and has one of the highest output levels of scientific papers in the world.

Hostile Neighbors

Israel’s position amongst a group of hostile nations has resulted in Israel developing global trade networks and, additionally, contributed greatly to its productivity and culture. Israel’s hostile neighbors meant that Israeli couldn’t trade at their border, but instead forced Israelis to both forge powerful global trade connections and become largely self-sufficient. This, in turn, influenced the development of Israeli culture into one which fosters productivity, innovation, and growth.

Culture: Chutzpah and Davka

The cultural institutions within Israel, although difficult to quantify, undoubtedly contribute to its economic growth. Two cultural phenomena in particular have aided Israel’s growth: Chutzpah and Davka. Chutzpah is the cultural ideal that a person can defy all social and cultural norms to pursue what is right, needed, or best. Davka is complementary to this and is often seen as the driving force behind chutzpah. It is the belief that the more Israel is attacked, the more they will succeed. These two forces together have had a powerful impact on the entrepreneurial culture of Israel.

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