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Why Israel — a desert country surrounded by enemies — is outperforming other countries

Israel at 75: Israel has no oil, chronic water shortages and many enemies. And yet, it's one of the most dominant nations for its size

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Israel marks the 75th anniversary of its founding this year, and the National Post is launching a five-month celebration of the Jewish state, telling the remarkable story of its re-birth and resilience against all odds. We’ll toast its food, its multiculturalism, its world-leading innovation, its most intriguing people and more. Look for commentary, video, podcasts and more feting the “start-up” nation.

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Among the dozens of new nations founded in the chaotic wake of the Second World War, it’s safe to say that Israel did not make anyone’s list of states most likely to succeed.

The countries’ deficiencies are well-known: No oil, chronic water shortages and a total land footprint less than half the size of Nova Scotia. Even basic agriculture was a trial. “Soils had to be washed of salt, day after day, year after year, before crops could be planted,” wrote a young Robert F. Kennedy in a 1948 visit to the new nation.

On top of everything was the fact that Israel’s half dozen immediate neighbours all spent much of the country’s early life actively trying to destroy it.

And yet, by virtually every indicator the state of Israel as it turns 75 in 2023 keeps charting as one of the world’s most dominant nations for its size.

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A flag of Israel is held aloft at Place du Canada in Montreal Thursday, May 9, 2019 during Yom Ha’atzmaut celebrations. It was the 71st Independence day of the country.
A flag of Israel is held aloft at Place du Canada in Montreal Thursday, May 9, 2019 during Yom Ha’atzmaut celebrations. It was the 71st Independence day of the country. Photo by John Kenney / MONTREAL GAZETTE

This time last year, surging demand for Israeli exports drove the Israeli shekel to a 26-year high. Israel has the planet’s highest rate of tech startups per capita. UNICORNS. In 2021, Israel attracted a rate of venture capital that was 28 times higher than the United States.

As of last count, Israel’s unemployment rate of 3.7 per cent is among the world’s lowest, far outstripping the EU average of six per cent. Its life expectancy of 82.7 years is the planet’s seventh highest. The most recent World Happiness Index had Israel climb to number nine, behind only Luxembourg, Switzerland, the Netherlands and the Scandinavian countries.

It’s a record that most of the developed world can only dream about, including Canada. Despite spending the last 75 years sitting peacefully atop a bottomless supply of everything from petroleum to farmland to hydroelectric power, Canada lags behind Israel on everything from national debt to health care wait times.

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As to why, the simple explanation is that 75 years of constant existential threats have a way of focusing a country’s attention.

(A) sense of imminent disaster is real and deeply embedded in the national DNA

Vivian Bercovici

“(A) sense of imminent disaster is real and deeply embedded in the national DNA,” said Vivian Bercovici, Canada’s ambassador to Israel from 2014 to 2016. She currently lives in Tel Aviv and runs the State of Tel Aviv news site. “So much of ‘normal’ daily life is saturated with an urgency you simply don’t feel in most places,” she added.

This was a phenomenon on keen display during the depths of the COVID-19 pandemic. Israel famously engineered a lightning-fast vaccine rollout that rapidly transformed it into the world’s first – and for a time, only – country with widescale-immunity to COVID-19.

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Israeli history is similarly peppered with instances where scarcity or crisis has forced the country to improvise.

The country’s lack of reliable water sources has been called a “blessing in disguise” as it drove Israel to become a world leader in water management and conservation. With Israel now routinely dubbed a “water superpower,” its technology and know-how is in high demand in the increasingly drought-stricken likes of California or Latin America.

Decades of near-constant armed conflict with larger foes has forged the Israeli military into the international poster child for doing more with less. The country’s defence innovations include everything from the Iron Dome — a missile defence system to intercept incoming rocket fire — to the EyeBall, a softball-sized robot that soldiers can throw into a room to electronically scout its contents before breaking down the door.

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Israel does all this with an annual military budget that is about the same as Canada’s. In 2021, both countries spent about US$25 billion on defence. And Israel, unlike Canada, makes much of its military kit in-house.

This track record is part of why Ukrainian President Volodymyr Zelenskyy has cited Israel as a model for his own country’s future. In April, Zelenskyy said that after the war with Russia is over, Ukraine should transform itself into a “big Israel”: a country that is laser-focused on defence without the need for allies.

Demonstrators gather at Habima Square in the centre of Israel’s Mediterranean coastal city of Tel Aviv on March 20, 2022 to attend a televised video address by Ukraine’s President Volodymyr Zelensky.
Demonstrators gather at Habima Square in the centre of Israel’s Mediterranean coastal city of Tel Aviv on March 20, 2022 to attend a televised video address by Ukraine’s President Volodymyr Zelensky. Photo by JACK GUEZ/AFP via Getty Images

A brief bout of devastating hyperinflation in the early 1980s saw the Israeli currency hemorrhage value at a rate of up to 950 per cent. In a set of emergency reforms designed to get the economy back on track, Israel scaled back government intervention in the economy and inaugurated a more independent central bank. Not only did it stem the hyperinflation crisis, but it laid the groundwork for the economic boom that was to follow.

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Montreal-area MP Anthony Housefather is chair of the Canada-Israel Interparliamentary Group and in his pre-politics life was an executive with Dialogic, a tech multinational with a heavy presence in Israel.

Housefather credited the Israeli government with a very deliberate policy of fostering domestic innovation, either through military support or what is now called the Israel Innovation Authority. Initially known as the Office of the Chief Scientist, it’s an arm’s-length agency tasked with encouraging private-sector research and development. Housefather said the agency is key to generating new intellectual property, but also “sharing profit and forgiving failure and requiring manufacture of funded products in Israel.”

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On May 14, 1948, Israel’s first day as an independent country, Israeli GDP per capita stood at roughly US$4,500 — well within the range of what would be considered an “economic backwater.” In recent years it has topped $40,000; roughly the OECD average.

At Israel’s inception, exports were equivalent to just $6 million. By the 2010s, they had grown by a factor of 16,000 to hit $100 billion.

Of course, this was all occurring in an era that yielded no shortage of economic miracles. Singapore took just 50 years to transform itself from a nation of squatters into one of the richest countries on Earth. And China’s turn towards a market economy has lifted an estimated 800 million people out of poverty.

But Israel’s example has defied the notion that stability and peace is a prerequisite for economic growth. Much of the modern Israeli economy has taken shape under conditions of near-continuous armed conflict. By one count, Israel has fought eight wars and two intifadas, in addition to near-constant border skirmishes and terrorist attacks.

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In 2022 alone, Israel has been hit by nine deadly terrorist attacks, killing 24 people. Proportionate to national population, that’s the equivalent of Canada losing 100 citizens in 36 terrorist attacks. And that’s only the ones that killed people. According to regular English-language reports released by the Israeli Ministry of Foreign Affairs, roughly every few hours yields a pipe bomb, rocket attack, stabbing or attempted vehicular attack.

These types of conditions are usually devastating to a country’s economy. In Northern Ireland, the violence and instability of The Troubles is estimated to have taken as much as a 20 per cent bite out of the country’s GDP.

But since at least 2000, Israel has kept posting annual growth rates of 3.3 per cent. During the pandemic, its growth rates became the highest in the OECD.

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And while many countries saw their rapid development shepherded in part by autocratic governments, Israel’s managed to take shape under a system of government that is democratic to the point of chaos. Often cited as the only democracy in the Middle East, Israel has an incredible 18 parties currently sitting in its 120-seat Knesset — and has undergone 25 national elections since its 1948 founding.

Israeli Prime Minister Benjamin Netanyahu, right, and Defence Minister Benny Gantz attend a cabinet meeting in the Knesset in Jerusalem on May 24, 2020.
Israeli Prime Minister Benjamin Netanyahu, right, and Defence Minister Benny Gantz attend a cabinet meeting in the Knesset in Jerusalem on May 24, 2020. Photo by Abir Sultan/Pool via REUTERS

When analysts attempt to figure out the secret to Israel’s success, they’ll often mention Israel’s high rate of education. The number of Israelis who have completed post-secondary education is among the highest in the world, bested only by Canada and Japan.

The country’s talent pool is constantly being enriched by fresh immigration. In particular, Israel benefited heavily from a massive 1990s influx of skilled, motivated Russian Jews who were fleeing the collapse of the Soviet Union.

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Housefather pointed to Israel’s unique system of compulsory military service; most Israelis (both male and female) must serve at least two years in the Israel Defence Forces. The policy “creates teamwork, trust and effectiveness and shared mission,” said the MP.

Culturally, Israelis are often labelled as being impatient. As one Times of Israel profile put it, queuing is basically non-existent, turn signals are a sign of “weakness” and arguments can very quickly escalate into screaming. Housefather didn’t use the word “rude,” but he did say Israel benefits from an ample supply of “chutzpah,” “questioning of authority” and “lack of fear of risk.”

According to Bercovici, the answer may simply be that Israelis succeed mainly because they can’t afford to fail.

“When something must be done, people try. And try. And just do not give up. This intensity has given rise to so much creativity and inventiveness that it often defies logic. Failure, really, is just another step on the way to success,” she said.

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