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May 4, 2020 6:40 am

Despite COVID-19, the Israeli Economy Will Continue to Thrive

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avatar by Jacob Sivak


The lobby of Tel Aviv’s stock exchange. Photo: Wikimedia Commons.

Before the COVID-19 pandemic, the Israel Central Bureau of Statistics reported that Israel’s economy grew by 3.3% in 2019. While this is slightly lower than the 2018 rate of 3.4%, it is still the highest among Western countries — almost double the OECD average of 1.7%.

The Israeli economy may suffer in 2020 because of the virus, along with the economies of other nations; but it won’t suffer nearly as much. A report by Shoshanna Solomon in The Times of Israel describes an Israeli start-up company, Nanoscent, which has developed a microchip that allows electronic devices to “smell” odors. The company, which has raised several million dollars for this work, has begun to test its technology at Tel Hashomer Hospital to see if it can detect those infected with COVID-19 with a simple 30-second nasal breath test, an ideal approach for mass screening purposes.

Nor is this the only recent example. On April 27, it was reported that the US gaming and computer graphics company Nvidia had purchased Mellanox, an Israeli company that specializes in high speed servers, for $7 billion.

In fact, Israeli exports increased by 70% in the past decade, mainly because of soaring exports of high technology. In an earlier Times of Israel article (January 14, 2020), Solomon noted that an increasing number of multinational companies have been purchasing Israeli companies and technologies, and setting up local research and development (R&D) centers.

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The 2009 book Start-Up Nation described the story of Israel’s economic miracle, and indeed the expression “start-up nation” is now widely accepted as referring to Israel. In a recent interview, one of the book’s co-authors, Saul Singer, noted that the start-up situation in Israel has matured. There are more serial entrepreneurs who have started multiple companies, and their experiences, good and bad, mean that they have a better chance at success. And many entrepreneurs are interested in more than financial success; they want to do something that they believe is meaningful for the world.

What is this amazing success in Israel attributed to? According to the book, it is not due to any inherent advantage conferred by ethnicity or religion. They point to the effect of mandatory service in the army and the high immigrant population of Israel. The Israeli army, the IDF, is a non-hierarchical organization that encourages improvisation and the questioning of authority, while immigrants are more amenable to taking risks.

Jared Diamond’s recent book Upheaval (2019) provides a more prosaic answer to the question. The book, which consists of seven case studies of nations, notes the connection between spending on R&D and a country’s economic strength, especially with regard to those countries that are poor in natural resources. Well, guess what? When expressed as a percentage of gross domestic product (GDP), Israel spends more on R&D than any other country in the world, and in most cases the gap is significant. The value for Israel is 4.8%, as opposed to 3.5% for Japan, 2.5% for Germany, 2.0% for China, 1.8% for the US, and 1.7% for Canada. Only South Korea comes close to Israel.

Delegations from many countries, including India and China, as well as some from Arab countries, have visited to learn from Israel. Interest in Israeli innovation has multiplied to the extent that Israel 21c, an American online magazine and non-profit organization that describes Israeli high tech developments, advertises a variety of tours of the Israeli start-up scene. In fact, Jon Medved, a prominent Israeli entrepreneur and venture capitalist, has described the numerous foreign company and government officials visiting Israel to find out how to duplicate Israel’s success, as a new kind of “pilgrimage” to the Holy Land.

Jacob (Jake) Sivak, elected a Fellow of the Royal Society of Canada in 2002, is a retired professor in the School of Optometry, University of Waterloo, where he continues his research interests as a Distinguished Professor Emeritus. He has a lifelong interest in the history of the Jewish people.

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