If Thomas L. Friedman is right, and the world is now a flat world, then Israel has one of the largest opportunities to capitalize than any other country. Israel has begun to grow in this flat world, but there are reasons to believe that Israel will grow beyond anyone’s expectations. The reasons are: there is a small workforce of less than 6 million people, 20% of the Israeli population holds a university degree, limited natural resources, and business connections throughout the world.
In the flat world, hard labor is outsourced to places of cheap labor, this cheap labor replaces the employment costs of a big business, thereby reducing their overall costs and increasing the profits. In Israel, where there are highly educated and limited number of laborers, the cost of labor prohibits low-level jobs from being brought into the country. In India or China on the other hand, millions, maybe billions, of people are trying to insource the cheap electronics or fashion manufacturing. And so, in Israel, the opportunities are on the other side of the insource-outsource balance. Don’t get me wrong Israel does insource highly specialized work that is sent from America. For example, the Rimon Law Group specializes in outsourced legal work, the high-level stuff that costs sometimes $800/hour! The Rimon Law Group’s charges about $250/hour for its most expensive lawyer, a Harvard attorney with over 20 years experience dealing with public companies. You can get American lawyers for around $150/hr, you just have to be willing to allow them to telecommute from Israel. Intel just build a $3.5 billion research and development center in Israel, here is an astonishing quote from Maxine Fassberg, vice president and the general manager of Intel Israel: “When we hit full production, we will change Israel’s GDP by 2%.” Clearly, insourcing will make Israel a stronger, smarter economy, but outsourcing is helping boost profits as well.
Israel now has companies large enough to sent their R&D and manufacturing outside of the country. Teva Pharmaceuticals has invested $1 billion in a new drug facility in India. So, if Israel is outsourcing to India, what does that mean for workforce?
Israeli’s are the some of the most efficient humans on the planet. They are cousins of Einstein & Feynman, Page & Brin, Spielberg & Seinfeld, Stern & Selig, Tom & Jerry (the ice cream, not the cartoon), and other non-paired Jews. Whatever it is that breeds success, it is literally in their genes. And for those of you who doubt that intelligence is passed on through genes, here me out. According to Hillel.org 25% of the students at Harvard and Columbia are Jewish. Jewish parents encourage their children to achieve higher education, Israeli parents act no different: Israel ranks third in the world in the number of citizens who hold university degrees (20%), while 12% hold graduate degrees.
This isn’t an exercise in gloating, there is a point to the previous paragraph. An educated population will do one of two things: invent or manage. A less educated population will do one of two things: manufacture or utilize. Without an invention, there is nothing to manufacturer. And without an idea to manage, there is nothing useful. Take for example Shai Agassi, an expert in computer engineering, he invented some solid software that was sold to SAP, twice, once as an outsider, and once as an insider. All is well, but now he feels the need to enter an industry in which he cannot invent since his background is in computer software, futhermore, he has gained the trust of so many people he is not expected to invent. He has put it upon himself to be the CEO (or head manager) of a startup called Project Better Place, the most funded started of all-time. He was able to raise the money from investors, deal with government beurocracy in Israel, and sign deals Renault and Nissan. The definition of an entrepreneur-manager if anyone ever needed one.
The fact that Israel has limited natural resources means that it can never succumb to Dutch Disease. No stagnation due to abundance, I will requote Anne Frank (also in my image header): “What appears easy and attractive will drag one down into the depths, depths where there is no comfort to be found, no friends and no beauty, depths from which it is almost impossible to raise oneself.” An information based economy will lead itself towards low-unemployment, it may even be possible to achieve zero-unemployment if the proper resources are shifted towards entertainment. The key is to keep working, the brain must keep working, not the body, the body simply moves earth, while the brain has the ability to create things. I didn’t mean for this to get philisophical, but this does make sense. To give you an idea of the Dutch Disease, and how to get out of it, listen to this short tale:
There is a town in Islamabad that produces coal for a factory. The coal miners have a single skill, withdrawing coal. They make good money and spend their goods at the local pub, restaurant, or they spend it to buy a house. When the coal mine empties, the miners obviously lose their jobs, sad story, of course. When all of the coal is finished in the country, where do the miners go? To more hard labor most likely. But take 2 of the workers, one of them, Ahmed, invested his money into a degree in mechnical engineering, while the other, Sultan, bought a house. After getting his degree, Sultan figured out a way to build a machine that can withdraw coal twice as fast. Sultan sold his machine to the mine owner, while Ahmed lost his job. Sultan is now getting paid royalties, moved into a new house, and is retired. Sultan is unemployed but recently heard of a new job opportunity. Sultan opened a comedy club down the street and is hiring one comedian. Ahmed got the job because he was the best joke teller in the mine. Now Sultan pays Ahmed to tell jokes, while the coal is being mined automatically.
You see, information breeds automation, which gives humans the freedom to do things they have a better skill in doing, such as comedy.
The final point is in business connections, which will be saved for a later post.
