Throughout my time in Israel thus far, I’ve had the privilege of exploring some of the nation’s greatest treasures. From the heights of the Golan all the way down to the Ein Geidi oasis, there’s still so much more left to see. However, today, Israel Experience planned a special seminar for us ITFers right in our own backyards. If you guessed Tel Aviv, then you are correct!
An international hub and arguably the greatest financial center of the Middle East, many people know Tel Aviv for its vibrant night life, crowded beaches, gay-pride, ridiculously priced real estate, and the Carmelit Shuk. What most people don’t know is that the city, also commonly known as the “state of Tel Aviv” or the “Tel Aviv Bubble” has more startups per capita than any other city in the world. There are over 6,000 startup companies in Israel with a population of only 8 million.
Instant messaging, USB’s, firewalls, drip irrigation, and even cherry tomatoes (admit it, we all eat them) are all Israeli inventions. The navigation software, Waze is an Israeli invention and was recently bought by Google for a hefty sum. Ashton Kutcher is famous in Tel Aviv for being an “angel investor,” just one of many wealthy individuals who provides funds for business ventures. After Silicon Valley, Tel Aviv ranks as the next biggest startup capital in the world. International companies plant R&D (research and development) centers in Tel Aviv to make prototypes before building and exporting large-scale. Thanks to an impressive presentation by Assaf Luxemburg (from whom all the economic facts and ideas included in this post stem), I pieced together so many pieces of Tel Aviv’s history and culture with its economic success. But, let’s rewind a few decades back to when the city of Tel Aviv was just a pile of sand.
The only settled neighborhood in the area at the beginning of the 20th century was Jaffa. Overcrowded and overpopulated, a group of pioneers founded Neve Tzedek in 1887, the first Jewish neighborhood to be built outside the port city (woohoo!). Thanks to a second wave of European, middle-class immigrants, in April 1909, 66 families allocated plots of land to what is modern-day Tel Aviv and created the 13th neighborhood of its kind. The question then becomes “What made Tel Aviv flourish to the top, leaving surrounding localities, like Neve Tzedek, behind in the dust?”
And Assaf’s presentation only reinforced this notion from an economic standpoint. Think about it- here we have a country built on socialist values functioning as a socialist economy. Not an ideal place for business. The same socialism that other countries resisted, Israel was able to reinvent to make it work, Exhibit A being the Kibbutz. And yet, through 5 steps and transition to privatization, Israel was able to transform from Socialism to Startup Haven. Technically, however, the idea of Tel Aviv as the startup “nation” only began in 1987. The year 1985 is basically the US 1929 equivalent for Israel, a dark time in which CPI soared beyond 400% and inflation was at an all-time high. Surprisingly, however, during this financially concerning period the economy remained stable and GDP actually continued to increase steadily, albeit not at the same rate as before. Tel Aviv is the ultimate economic experiment. A city under physical stress and a harsh reality (cue unfriendly neighbors and dire geopolitical situation) and a democracy in the Middle East, the city’s formula certainly should result in a "failed state" like so many others in its position. Israel literally connects the Middle East to Africa (seriously, look at a map people!), and economically, Tel Aviv is thus an island in a vast ocean.
Luxemborg uses the SWOT (Strengths, Weaknesses, Opportunities, and Threats) strategy to break down the miracle of the Israeli Economy and uncovers the recipe for Tel Aviv’s success. Negativity first, I’ll start with the weaknesses that should have Israel set for failure:
- The conflict. If you don’t know how this should affect the economy, do some reading.
- Low participation in workforce. The unemployment rates is not the problem; the issue is that people who can work choose not to aka Arab women and Orthodox Jewish men.
- Inequality and centralization, which translates to lack of competition in the market. This puts financial pressure on the middle class and decreases PPP (Purchasing Power Parity).
- Degrading competitive advantage. Israel lacks the economies of scale just because the size of the country itself!
- Lack of corporate giants. No giants here: international companies only set up camp in Israel, none of them are actually Israeli though (i.e. Google, Facebook, Intel, are not Israeli companies). Assaf uses the term “serial entrepreneurs,” following a cycle of “enter, sell, exit, and re-enter” the market. In other words, people jump-in to start ups and sell them for the big bucks, and jump back into the pool with new ideas.
Further threats include the fact that Israel has no natural resources (minus some potential pockets of natural gas) and no regional trade (again, cue unfriendly neighbors). Also, a huge chunk of the workforce is missing due to mandatory regional service.
Here, however is where the threats and weakness are manipulated into opportunities and developed into strengths. The key here being the IDF and the fact that it provides valuable management experience. Yes there are soldiers in combat, but there are just as many running behind the scenes operations and managing the units. To prove a point, Assaf brought up OPORDs, military strategy 101 in Israel: Target--> Mission--> Objectives & Indicators. If 18-21 year-olds can be taught to think in this way, they are being taught crucial habits for business organizational culture and project management. Thus is born the “Israeli Way”- a culture in which informality, directness, energy, and chutzpah are all blended into a key entrepreneurial characteristic that Israeli literally breeds. The country knows how to turn its threats into opportunities, using its history and culture to shape its economics. Tel Aviv manifests this potential and serves as a poster child of this story. And the last piece of Tel Aviv which I discovered today (although I think I knew it all along and just didn’t know how to articulate it), is the city’s creative energy thriving in our DNA as Jewish people. Faced with hardships and challenges, forced to fend for ourselves and living under pressure catalyzes this lifestyle.
So, to better help us grasp the concept, our last stop of the day involved a little טיול to Google Tel Aviv!!!! While I had a really fun time taking pictures with literally everything branded "Google" and touring the themed office floors such as downtown Tel Aviv (picture cobblestone carpeting), what I think was supposed to be an Orange Tree farm, and a Rose/Flower floor, we also got to speak with an Israeli Google Engineer. Oh, and did I mention there was a slide inside between floors, really just like in the Internship?! Basically, though, I learned that Google decided to open its office in Tel Aviv a little less than 10 years ago and is a center for Research and Development. Most of the employees in Israel are in fact Israeli, and Google boasts that they came to Tel Aviv (and also an office in Haifa) in search for the talent. Learn more about Google Israel here!
I know that I will never look at Tel Aviv in the same way after today. A city rich with innovative history and different pockets of culture further reflected by the economy, it truly is a special place. Sometimes it's easy to forget what a marvel and rarity it is to have such a booming (financially, culturally, socially) city rising from the sandy ashes.