Start-up Nation

by Dan Senor, Saul Singer

  Spend time in Singapore and it’s immediately obvious that it is tidy. Extremely tidy. Perfectly manicured green lawns and lush trees are framed by a skyline of majestic new skyscrapers. Global financial institutions’ outposts can be found on nearly every corner. The streets are free of trash; even innocuous litter is hard to spot. Singaporeans are specifically instructed on how to be polite, how to be less contentious and noisy, and not to chew gum in public.

  Tidiness extends to the government, too. Lee Kuan Yew’s People’s Action Party has basically been in uninterrupted power since Singaporean independence. This is just the way Lee wants it. He has always believed that a vibrant political opposition would undermine his vision for an orderly and efficient Singapore. Public dissent has been discouraged, if not suppressed outright. This attitude is taken for granted in Singapore, but in Israel it’s foreign.

  Israeli air force pilot Yuval Dotan is also a graduate of Harvard Business School. When it comes to “Apollo vs. Columbia,” he believes that had NASA stuck to its exploratory roots, foam strikes would have been identified and seriously debated at the daily “debrief.” In Israel’s elite military units, each day is an experiment. And each day ends with a grueling session whereby everyone in the unit—of all ranks—sits down to deconstruct the day, no matter what else is happening on the battlefield or around the world. “The debrief is as important as the drill or live battle,” he told us. Each flight exercise, simulation, and real operation is treated like laboratory work “to be examined and reexamined, and reexamined again, open to new information, and subjected to rich—and heated—debate. That’s how we are trained.”12

  In these group debriefs, emphasis is put not only on unrestrained candor but on self-criticism as a means of having everyone—peers, subordinates, and superiors—learn from every mistake. “It’s usually ninety minutes. It’s with everybody. It’s very personal. It’s a very tough experience,” Dotan said, recalling the most sweat-inducing debriefings of his military career. “The guys that got ‘killed’ [in the simulations], for them it’s very tough. But for those who survive a battle—even a daily training exercise—the next-toughest part is the debriefing.”

  Dotan was an IAF formation commander flying F-16 fighter jets. “The way you communicate and deconstruct a disagreement between differing perspectives on an event or decision is a big part of our military culture. So much so that debriefing is an art that you get graded on. In flight school and all the way through the squadron . . . there are numerous questions regarding a person’s ability to debrief himself and to debrief others.”

  Explaining away a bad decision is unacceptable. “Defending stuff that you’ve done is just not popular. If you screwed up, your job is to show the lessons you’ve learned. Nobody learns from someone who is being defensive.”

  Nor is the purpose of debriefings simply to admit mistakes. Rather, the effect of the debriefing system is that pilots learn that mistakes are acceptable, provided they are used as opportunities to improve individual and group performance. This emphasis on useful, applicable lessons over creating new formal doctrines is typical of the IDF. The entire Israeli military tradition is to be traditionless. Commanders and soldiers are not to become wedded to any idea or solution just because it worked in the past.

  The seeds of this feisty culture go back to the state’s founding generation. In 1948, the Israeli army did not have any traditions, protocols, or doctrines of its own; nor did it import institutions from the British, whose military was in Palestine before Israel’s independence. According to military historian Edward Luttwak, Israel’s was unlike all postcolonial armies in this way. “Created in the midst of war out of an underground militia, many of whose men had been trained in cellars with wooden pistols, the Israeli army has evolved very rapidly under the relentless pressure of bitter and protracted conflict. Instead of the quiet acceptance of doctrine and tradition, witnessed in the case of most other armies, the growth of the Israeli army has been marked by a turmoil of innovation, controversy, and debate.”

  Furthermore, after each of its wars, the IDF engaged in far-reaching structural reforms based on the same process of rigorous debate.

  While the army was still demobilizing after the 1948 War of Independence, Ben-Gurion appointed a British-trained officer named Haim Laskov to examine the structure of the IDF. Laskov was given a blank check to restructure the army from the ground up. “While such a total appraisal would not be surprising after a defeat,” Luttwak explained to us, “the Israelis were able to innovate even after victory. The new was not always better than the old, but the flow of fresh ideas at least prevented the ossification of the military mind, which is so often the ultimate penalty of victory and the cause of future defeat.”13

  The victory in the 1967 Six-Day War was the most decisive one Israel has ever achieved. In the days before the war, the Arab states were openly boasting that they would be triumphant, and the lack of international support for Israel convinced many that the Jewish state was doomed. Israel launched a preemptive attack, destroying the entire Egyptian air force on the ground. Though the war was called the Six-Day War, it was essentially won on that first day, in a matter of hours. By the end, the Arab states had been pushed back on all fronts.

  And yet, even in victory, the same thing happened: self-examination followed by an overhaul of the IDF. Senior officials have actually been fired after a successful war.

  It should not be surprising, then, that after more controversial wars—such as the 1973 Yom Kippur War, the 1982 Lebanon war, and the 2006 Lebanon war, which most Israelis perceived as having been seriously botched—there were full-blown public commissions of inquiry that evaluated the country’s military and civilian leaders.

  “The American military does after-action reports inside the military,” military historian and former top U.S. State Department official Eliot Cohen told us. “But they are classified. A completely internal, self-contained exercise. I’ve told senior officers in the U.S. military that they would well benefit from an Israeli-like national commission after each war, in which senior ranks are held accountable—and the entire country can access the debate.”14

  But that’s not going to happen anytime soon, much to the frustration of U.S. Army Lieutenant Colonel Paul Yingling. “We’ve lost thousands of lives and spent hundreds of billions of dollars in the last seven years in efforts to bring stability to two medium-sized countries; we can’t afford to adapt this slowly in the future,”15 he said in a lecture at the marine base at Quantico, Virginia. The problem, he wrote in a controversial essay in 2007, is that “a private who loses a rifle suffers far greater consequences than a general who loses a war.”16

  The Israelis, on the other hand, have been so dogmatic about their commissions that one was even set up in the midst of an existential war. In July 1948, in what Eliot Cohen described as “one of the truly astonishing episodes” of Israel’s War of Independence, the government established a commission staffed by leaders from across the political spectrum while the war was still going on. The commission stepped back for three days to hear testimony from angry army officers about the government and the military’s conduct during the war and what they believed to be Ben-Gurion’s micromanagement.17 Setting up a commission amid the fighting of a war was a questionable decision, given the distraction it would impose on the leadership. But, as Yuval Dotan told us earlier, in Israel the debrief is as important as the fighting itself.

  This rigorous review and national debrief was in full public display as recently as the 2006 Lebanon war. Initially, there was almost unanimous public backing for the government’s decision to respond massively to the attack by Hezbollah from across Israel’s northern border on July 12, 2006. This public support continued even when civilians in northern Israel came under indiscriminate missile attack, forcing one out of seven Israelis to leave their homes during the war.

  Support for continuing the offensive was even higher among those living under the missile barrage than in the
rest of Israel. This support presumably came from an Israeli willingness to suffer in order to see Hezbollah destroyed for good.

  But Israel failed to destroy Hezbollah in 2006, and was unable to weaken Hezbollah’s position in Lebanon and to force the return of kidnapped soldiers. The reaction against the political and military leadership was harsh, with calls for the defense minister, IDF chief of staff, and prime minister to step down. Six companies of troops (roughly six hundred soldiers) were able to kill some four hundred Hezbollah fighters in face-to-face combat while suffering only thirty casualties, but the war was considered a failure of Israeli strategy and training, and seemed to signal to the public a dangerous departure from the IDF’s core ethos.

  Indeed, the 2006 Lebanon war was a case study in deviation from the Israeli entrepreneurial model that had succeeded in previous wars. According to retired general Giora Eiland, who has headed both the prestigious IDF Planning Branch and the National Security Council, the war underscored four principal IDF failures: “Poor performance by the combat units, particularly on land; weakness in the high command; poor command and control processes; and problematic norms, including traditional values.” In particular, Eiland said, “open-minded thought, necessary to reduce the risk of sticking to preconceived ideas and relying on unquestioned assumptions, was far too rare.”

  In other words, Israel suffered from a lack of organization and a lack of improvisation. Eiland also noted that soldiers were not sufficiently instilled with “the sense that ‘the fate of the war is on our shoulders.’ ” Commanders “relied too much on technology, which created the impression that it was possible to wage a tactical land battle without actually being in the field.”

  Finally, Eiland leveled a criticism that is perhaps quintessentially Israeli and hardly imaginable within any other military apparatus: “One of the problems of the Second Lebanon War was the exaggerated adherence of senior officers to the chief of staff’s decisions. There is no question that the final word rests with the chief of staff, and once decisions have been made, all must demonstrate complete commitment to their implementation. However, it is the senior officers’ job to argue with the chief of staff when they feel he is wrong, and this should be done assertively on the basis of professional truth as they see it” (emphasis added).

  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 period through a thriving entrepreneurial private sector that was initially catalyzed by government action.

  The roots of the first period of economic growth can be traced to well before the country’s founding—all the way back to the late nineteenth century. For example, in the 1880s, a group of Jewish settlers tried to build a farming community in a new town they had founded— Petach Tikva—a few miles from what is now Tel Aviv. After first living in tents, the pioneers hired local Arab villagers to build mud cabins for them. But when it rained the cabins leaked even more than the tents, and when the river swelled beyond its banks, the structures melted away. Some of the settlers were struck by malaria and dysentery. After just a few winters, the farmers’ savings had been exhausted, their access to roads washed out, and their families reduced to near starvation.

>   In 1883, though, things began to look up. The French-Jewish banker and philanthropist Edmond de Rothschild provided desperately needed financial support. An agricultural expert advised the settlers to plant eucalyptus trees where the river’s overflow created swamps; the roots of these trees quickly drained the swamps dry. The incidence of malaria dropped dramatically, and more families came to live in the growing community.2

  Beginning in the 1920s and continuing through the decade, labor productivity in the Yishuv—the Jewish community of pre-state Palestine—increased by 80 percent, producing a fourfold increase in national product as the Jewish population doubled in size. Strikingly, as a global depression raged from 1931 to 1935, the average annual economic growth for Jews and Arabs in Palestine was 28 and 14 percent, respectively.3

  The small communities established by settlers, like those of Petach Tikva, would never have been able to achieve such explosive growth on their own. They were joined by waves of new immigrants who contributed not only their numbers but a pioneering ethos that overturned the charity-based economy.

  One of those immigrants was a twenty-year-old lawyer named David Gruen, who traveled from Poland in 1906. Upon arrival, he Hebraized his name to Ben-Gurion—naming himself after a Jewish general from the Roman period of 70 c.e.—and quickly rose to become the uncontested leader of the Yishuv. The Israeli author Amos Oz has written that “in the early years of the state, many Israelis saw him as a combination of Moses, George Washington, Garibaldi and God Almighty.”4