Start-up Nation

While the average student-teacher ratio in the GCC is 12 to 1—one of the world’s lowest, comparing favorably with an average of 17 to 1 in OECD countries—it has had no real positive effect. Unfortunately, international evidence suggests that low student-teacher ratios correlate poorly with strong student performance and are far less important than the quality of the teachers. But the education ministries in most Arab countries do not measure teacher performance. Inputs are easier to measure, through a methodology of standardization.

Focusing on the number of teachers has particularly harmful implications for boys in the Arab world. Many government schools are segregated by gender: boys are taught by men, girls by women. Since teaching positions have traditionally been less appealing to men, there is a shortage of teachers for boys. As a result of the smaller talent pool, boys’ schools often employ lower-quality teachers. In fact, the GCC gender gap in student performance is among the most extreme in the world.

Finally, a perhaps even larger factor in the limit on high-growth entrepreneurial economies is the role of women. Harvard University’s David Landes, author of the seminal book The Wealth and Poverty of Nations, argues that the best barometer of an economy’s growth potential lies in the legal rights and status of its women. “To deny women is to deprive a country of labor and talent . . . [and] to undermine the drive to achievement of boys and men,” he writes. Landes believes that nothing is more dilutive to drive and ambition than a sense of entitlement. Every society has elites, and a number of them were born into their upper-echelon status. But there is no more widely dispersed sense of entitlement than ingraining in the minds of half the population that they are superior, which, he argues, reduces their “need to learn and do.” This kind of distortion makes an economy inherently uncompetitive, and it is the result of the subordinated economic status of women in the Arab world.²⁰

The economy of Israel and many of those in the Arab world are living laboratories for the economic theory of clusters and, more broadly, what it takes for nations to generate—or stifle—innovation. The contrast between the two models demonstrates that a simplistic view of clusters—one that maintains that a collection of institutions can be mechanically assembled and out will pop a Silicon Valley—is flawed. Moreover, it seems that a stake in the country, Tuchman’s “motive,” provides an essential glue that helps encourage entrepreneurs to build and take risks.

CHAPTER 14

Threats to the Economic Miracle

We’re using fewer and fewer of the cylinders to move this machine forward.

—DAN BEN-DAVID

THE ISRAELI ECONOMY is still in its infancy. The start-up scene that seems so established today was born at roughly the same time as the Internet economy itself, just over a decade ago. The dawn of Israel’s tech boom coincided not only with a global surge in information technology but with the American tech-stock bubble, the jump-starting of Israel’s venture capital industry through the Yozma program, the massive wave of immigration from the former Soviet Union, and the 1993 Oslo peace accords, bringing what seemed to be the prospect of peace and stability. What if Israel’s economic miracle were simply built on a rare confluence of events and would disappear under less favorable circumstances? Even if Israel’s new economy is not just the product of happenstance, what are the real threats to Israel’s long-term economic success?

One need not speculate about what would happen if the positive factors that launched Israel’s tech boom in the late 1990s were to disappear. Most of them have.

In 2000, the tech-stock bubble burst. In 2001, the Oslo peace process crumbled, as a wave of suicide bombings in Israel’s cities temporarily wiped out the tourism industry and contributed to an economic recession. And the massive flow of immigrants from the former Soviet Union, which swelled the Jewish population of the country by one-fifth, exhausted itself by the end of the 1990s.