In continuation to the discussion about growth through innovation, I took a look at the economic drivers that drive the baseline of an economy. Normal growth curves can take small states, like Israel, into pretty much cruise mode – GDP will sustain as long as three cost ratios remain stable:
- Demographics, as represented by health care costs and social security ratios, both manifesting the retired population to working generation size ratios
- Education, as measured through the ratio between what an 18 year old knows when they come out of school with compared to their parents at 18.
- Security costs, counting military spending and internal crime rates.
Interestingly the US is reversing ratios on all these indicators in recent years. The demographics in the US, as result of significant improvements in medicine grows a much larger aging population than native working population. We have seen a significant slide back in the knowledge ratio (son/father knowledge ratio has been declining since the late 80s) – which is amazing given all the technology we are able to use for educating kids these days. Finally, we have had significant decline in normal internal security costs (with a very interesting explanation as to the reasons you can read in Freakonomics), but a six-year very significant spike in (what we hope are temporary) costs of wars on Terror at home and abroad.
What I believe is holding the US is a combination of talent import process, caused by the great H1-B visa policy that allowed more than a million talented scientists and engineers to immigrate into the US if they can show knowledge – not money – as the ticket to the promised land of silicon valley. That wealth of knowledge met wealth of capital (the funny part is this wealth comes from global capital coming to invest back in their own exported talents) – with the meeting place set for Sand Hill Rd, Menlo Park, CA. The creativity of these young engineers brought us the web, eCommerce, the gadgets (no, I didn’t get an iPhone yet – but I sure want one…), the ever present connected world, advertising based media, the social virtual community of web 2.0 – wave after wave of [Knowledge -> Technology -> IP -> wealth -> Venture Capital] circles. All the while, the economy is growing, taxes are flowing, and everyone enjoys the party (especially the tax man).
The comment on my previous post regarding Singapore’s leadership success, one that comes from treating the island state as a large company by its founder-leader is right on. To a certain (much larger) degree, China applied the same model to create modern china over the last few years. Where most countries need one good idea every 5-10 years and can ride the wave of that idea for a generation, China needs to create one of those big ideas pretty much every 5-10 months at their scale. So what is the next big idea – because if you are a small country, like Israel or Singapore, you just can’t wait for the wave to hit the shore, you have to start paddling before the wave comes.
I contend that it is time to get Israel out of cruise mode – not by slowing down the great circular VC model – rather by accelerating and focusing part of it. It is also time to turn Israel’s global brand around – the world mostly sees Israel as exporting a problem by the friction it creates through its (legitimate!!) presence in the middle-east. I believe it is time for Israel to start solving some big problems that worry us on a global scale and export the solutions. Personally, I would like to see Israel start exporting solutions to the true fundamentals again – Water, Food, Energy, Emissions, Genetics – the founding blocks of humanity.
The theory I have is that Israel should focus on one or two of these every five years, in overlaping waves. The focus is not a government program – quite the contrary, it needs to be a commercial focus, galvanized through a challenge of huge scale. The challenge needs to be one that can unite the common people, the entrepreneurs, the wealth – so much so that no one will want to be left “outside” the solution. Think of it as an Apollo mission, getting humanity to the moon and back, only targeted at one or more of these fundamental problems. Make the challenge look so big it becomes truly emotional, the best brains can see their life’s mission in it – after which they simply can’t back away from that mission, day and night.
In the next posts I will try to illustrate how big the problems are, but also how small the solutions can be. All of these fundamental solutions are tightly interlinked, and the key is that solving one will help solve the rest of them in a cascade of solutions.