Israel's economic miracle

Fantastic article in The City Journal. Here's only a small part:

In under 25 years—starting from those first modest tax reforms of the mid-1980s—Israel has accomplished the most overwhelming transformation in the history of economics, from a nondescript laggard in the industrial world to a luminous first. Today, on a per-capita basis, Israel far leads the world in research and technological creativity. Between 1991 and 2000, even before the big reform of 2005, Israel’s annual venture-capital outlays, nearly all private, rose nearly 60-fold, from $58 million to $3.3 billion; companies launched by Israeli venture funds rose from 100 to 800; and Israel’s information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. And it led the world in the share of its growth attributable to high-tech ventures: 70 percent.

Even a year or two later—while the rest of the world slumped after the millennial telecom and dot-com crash and Israel suffered an acute recession—its venture capitalists strengthened its lead in technological enterprise. During the first five years of the twenty-first century, venture-capital outlays in Israel rivaled venture-capital outlays in all of the United States outside California, long the world’s paramount source of entrepreneurial activity in high technology.

Today, Israel’s tech supremacy is even greater. A 2008 survey of the world’s venture capitalists by Deloitte & Touche showed that in six key fields—telecom, microchips, software, biopharmaceuticals, medical devices, and clean energy—Israel ranked second only to the United States in technological innovation.

Venture capital is the most catalytic force in the world economy. In the United States, venture-backed companies produced nearly one-fifth of GDP in 2007. At a time when American venture capital is flagging under the financial crisis, the emergence of a comparable venture scene in Israel, linked closely to Silicon Valley, is providential for both the American economy and its military defense.

This development makes Israel one of America’s most important economic allies. Israel’s creativity now pervades many of the most powerful and popular new technologies, from personal computers to iPods, from the Internet to the medical center.