Start-Up Nation - The Story of Israel's Economic Miracle Part 4

One of those immigrants was a twenty-year-old lawyer named David Gruen, who traveled from Poland in 1906. Upon arrival, he Hebraized his name to Ben-Gurion-naming himself after a Jewish general from the Roman period of 70 c.e. c.e.-and quickly rose to become the uncontested leader of the Yishuv. The Israeli author Amos Oz has written that "in the early years of the state, many Israelis saw him as a combination of Moses, George Washington, Garibaldi and G.o.d Almighty."4 Ben-Gurion was also Israel's first national entrepreneur. Theodore Herzl may have conceptualized a vision for Jewish sovereignty and begun to galvanize Diaspora Jews around a romantic notion of a sovereign state, but it was Ben-Gurion who organized this vision from an idea into a functioning nation-state. After World War II, Winston Churchill described the United States Army general George Marshall as the Allied Powers' "organizer of victory." To paraphrase Churchill, Ben-Gurion was the "organizer of Zionism." Or in business terms, Ben-Gurion was the "operations guy" who actually built built the country. the country.

The challenge facing Ben-Gurion in operational management and logistics planning was extremely complex. Consider just one issue: how to absorb waves of immigrants. From the 1930s through the end of the Holocaust, as millions of European Jews were being deported to concentration camps, some managed to flee to Palestine. Others who escaped, however, were denied asylum by different countries and forced to remain in hiding, often in horrendous conditions. After 1939 the British government, which was the colonial power in charge of Palestine, imposed draconian restrictions on immigration, a policy known as the "White Paper." British authorities turned away most of those trying to seek refuge in Palestine.

In response, Ben-Gurion launched two seemingly contradictory campaigns. First he inspired and organized some eighteen thousand Jews living in Palestine to return to Europe to join the British army in "Jewish battalions" fighting the n.a.z.is. At the same time, he created an underground agency to secretly transport Jewish refugees from Europe to Palestine, in defiance of the United Kingdom's immigration policy. Ben-Gurion was at once fighting alongside the British in Europe and against the British in Palestine.

Most histories of this era focus on the political and military struggles that led to the founding of Israel in 1948. Along the way, a myth surrounding the economic dimension of this story has arisen: that Ben-Gurion was a socialist and that Israel was born as a thoroughly socialist state.

The sources of this myth are understandable. Ben-Gurion was steeped in the socialist milieu of his era and was heavily influenced by the rise of Marxism and the Russian Revolution of 1917. Many of the Jews arriving from the Soviet Union and Eastern Europe in pre-state Palestine were socialist, and they were highly influential.

But Ben-Gurion was singularly focused on building the state, by whatever means. He had no patience for experimenting with policies that he believed were simply designed to validate Marxist ideology. In his view, every policy-economic, political, military, or social-should serve the objective of nation building. Ben-Gurion was the cla.s.sic bitzu'ist, a Hebrew word that loosely translates to "pragmatist," but with a much more activist quality. A bitzu'ist is someone who just gets things done. Bitzu'ism is at the heart of the pioneering ethos and Israel's entrepreneurial drive. "To call someone a bitzu'ist is to pay him or her a high compliment," writes author and editor Leon Wieseltier. "The bitzu'ist is the builder, the irrigator, the pilot, the gunrunner, the settler. Israelis recognize the social type: crusty, resourceful, impatient, sardonic, effective, not much in need of thought but not much in need of sleep either."5 While Wieseltier is describing the pioneering generation, his words fit those who risk all to found start-ups. Bitzu'ism is a thread that runs from those who braved marauders and drained the swamps to the entrepreneurs who believe they can defy the odds and barrel through to make their dreams happen. For Ben-Gurion, the central task was the wide dispersion of the Jewish population over what would one day become Israel. He believed that an intensely focused settlement program was the only way to guarantee Israel's future sovereignty. Otherwise, unsettled or thinly settled areas could someday be reclaimed by adversaries, who would have an easier case to make to the international community if Jews were underrepresented in contested areas. Moreover, thick urban concentrations-in cities and towns like Jerusalem, Tiberias, and Safed-would make obvious targets for hostile air forces, which was another reason for dispersing the population widely. While Wieseltier is describing the pioneering generation, his words fit those who risk all to found start-ups. Bitzu'ism is a thread that runs from those who braved marauders and drained the swamps to the entrepreneurs who believe they can defy the odds and barrel through to make their dreams happen. For Ben-Gurion, the central task was the wide dispersion of the Jewish population over what would one day become Israel. He believed that an intensely focused settlement program was the only way to guarantee Israel's future sovereignty. Otherwise, unsettled or thinly settled areas could someday be reclaimed by adversaries, who would have an easier case to make to the international community if Jews were underrepresented in contested areas. Moreover, thick urban concentrations-in cities and towns like Jerusalem, Tiberias, and Safed-would make obvious targets for hostile air forces, which was another reason for dispersing the population widely.

Ben-Gurion also understood that people would not move to underdeveloped areas, far away from urban centers and basic infrastructure, if the government did not take the lead in settlement and provide incentives to relocate. Private capitalists, he knew, were unlikely to take on the risk of such efforts.

But this intense focus on development also produced a legacy of informal government meddling in the economy. The exploits of Pinchas Sapir were typical. During the 1960s and '70s Sapir served at different times as minister of finance and minister of trade and industry. His style of management was so micro micro that Sapir established different foreign currency exchange rates for different factories-called the "100 exchange rate method"-and kept track of it all by jotting each rate down in a little black notebook. According to Moshe Sanbar, the first governor of the Bank of Israel, Sapir famously had two notebooks. "One of them was his own personal central bureau of statistics: He had people in every large factory reporting back to him on how much they sold, to whom, how much electricity was consumed, etc. And this is how he knew, well before official statistics were kept, how the economy was doing." that Sapir established different foreign currency exchange rates for different factories-called the "100 exchange rate method"-and kept track of it all by jotting each rate down in a little black notebook. According to Moshe Sanbar, the first governor of the Bank of Israel, Sapir famously had two notebooks. "One of them was his own personal central bureau of statistics: He had people in every large factory reporting back to him on how much they sold, to whom, how much electricity was consumed, etc. And this is how he knew, well before official statistics were kept, how the economy was doing."

Sanbar also believes that this system could have worked only in a small, striving, and idealistic nation: there was no government transparency, but "all the politicians then . . . died poor. . . . They intervened in the market, and decided whatever they wanted, but at no point did anyone pocket even one cent."6 The Kibbutz and the Agriculture Revolution At the center of the first great leap was a radical and emblematic societal innovation whose local and global influence has been wildly disproportionate to its size: the kibbutz. Today, at less than 2 percent of Israel's population, kibbutzniks produce 12 percent of the nation's exports.

Historians have called the kibbutz "the world's most successful commune movement."7 Yet in 1944, four years before Israel's founding, only sixteen thousand people lived on kibbutzim ( Yet in 1944, four years before Israel's founding, only sixteen thousand people lived on kibbutzim (kibbutz means "gathering" or "collective," means "gathering" or "collective," kibbutzim kibbutzim is the plural, and members are called is the plural, and members are called kibbutzniks kibbutzniks). Created as agricultural settlements dedicated to abolishing private property and to complete equality, the movement grew over the following twenty years to eighty thousand people living in 250 communities, but this still amounted to only 4 percent of Israel's population. Yet by this time the kibbutzim had provided some 15 percent of the members of Knesset, Israel's parliament, and an even larger proportion of the IDF's officers and pilots. One-quarter of the eight hundred IDF soldiers killed in the 1967 Six-Day War were kibbutzniks-six times their proportion in the general population.8 Though the notion of a socialist commune might bring up images of a bohemian culture, the early kibbutzim were anything but. The kibbutzniks came to symbolize hardiness and informality, and their pursuit of radical equality produced a form of asceticism. A notable example of this was Abraham Herzfield, a kibbutz movement leader during the state's early years, who thought that flush toilets were unacceptably decadent. Even in the poor and beleaguered Israel of the 1950s, when many basic goods were rationed, flush toilets were considered a common necessity in most Israeli settlements and cities. Legend has it that when the first toilet was installed on a kibbutz, Herzfield personally destroyed it with an ax. By the 1960s, even Herzfield could not hold back progress, and most kibbutzim installed flush toilets.9 Kibbutzim were both hypercollective and hyperdemocratic. Every question of self-governance, from what crop to grow to whether members would have televisions, was endlessly debated. Shimon Peres told us, "In the kibbutzim, there were no police. There was no court. When I was a member, there was no private money. Before I came, there wasn't even private mail. The mail came and everyone could read it."

Perhaps most controversially, children were raised communally. While practices varied, almost all kibbutzim had "children's houses" where children lived and were tended to by kibbutz members. In most kibbutzim, children would see their parents for a few hours each day, but they would sleep with their peers, not in their parents' houses.

The rise of the kibbutz is partly a result of agricultural and technological breakthroughs made on Israeli kibbutzim and in Israeli universities. The transition from the extreme hardships and unbending ideologies of the founders' era, and from tilling the land to cutting-edge industry, can be seen in a kibbutz like Hatzerim. This kibbutz, along with ten other isolated and tiny outposts, was founded one night in October 1946 when the Haganah, the main pre-state Jewish militia, decided to establish a presence at strategic points in the southern Negev Desert. When daylight broke, the five women and twenty-five men who'd arrived to start the community found themselves on a barren hilltop surrounded by wilderness. A single acacia tree could be seen on the horizon.

It took a year before the group managed to lay a six-inch pipe that would supply water from an area forty miles away. During the 1948 War of Independence, the kibbutz was attacked and its water supply cut off. Even after the war, the soil proved so salty and difficult to cultivate that by 1959 the kibbutz members had begun to debate closing Hatzerim and moving to a more hospitable location.

But the community decided to stick it out since it became clear that the problems of soil salinity affected not only Hatzerim but also most of the lands in the Negev. Two years later, the Hatzerim kibbutzniks managed to flush the soil enough so that they were able to start growing crops. Yet this was just the beginning of Hatzerim's breakthroughs for itself and the country.

In 1965 a water engineer named Simcha Bla.s.s approached Hatzerim with an idea for an invention that he wanted to commercialize: drip irrigation. This was the beginning of what ultimately became Netafim, the global drip irrigation company.

Professor Ricardo Hausmann heads the Center for International Development at Harvard University and is a former minister of development in the Venezuelan government. He is also a world-renowned expert on national economic development models. All countries have problems and constraints, he told us, but what's striking about Israel is the penchant for taking problems-like the lack of water-and turning them into a.s.sets-in this case, by becoming leaders in the fields of desert agriculture, drip irrigation, and desalination. The kibbutz was at the forefront of this process early on. The environmental hardships the kibbutzim contended with were ultimately incredibly productive, much in the same way Israel's security threats were. The large amounts of R&D spending deployed to solve military problems through high technology-including in voice recognition, communications, optics, hardware, software, and so on-has helped the country jump-start, train, and maintain a civilian high-tech sector.

The country's disadvantage of having some of its area taken up by a desert was turned into an a.s.set. Looking at Israel today, most visitors would be surprised to discover that 95 percent of the country is categorized as semi-arid, arid, or hyperarid, as quantified by levels of annual rainfall. Indeed, by the time Israel was founded, the Negev Desert had crept up almost all the way north to the road between Jerusalem and Tel Aviv. The Negev is still Israel's largest region, but its encroachment has been reversed as its northern reaches are now covered with agricultural fields and planted forests. Much of this was accomplished by innovative water policies since the days of Hatzerim. Israel now leads the world in recycling waste water; over 70 percent is recycled, which is three times the percentage recycled in Spain, the country in second place.10 Kibbutz Mashabbe Sade, in the Negev Desert, went even further: the kibbutzniks found a way to use water deemed useless not once, but twice. They dug a well as deep as ten football fields are long-almost half a mile-only to discover water that was warm and salty. This did not seem like a great find until they consulted Professor Samuel Appelbaum of nearby Ben-Gurion University of the Negev. He realized that the water would be perfect for raising warm-water fish.

"It was not simple to convince people that growing fish in the desert makes sense," said Appelbaum, a fish biologist. "But it's important to debunk the idea that arid land is infertile, useless land."11 The kibbutzniks started pumping the ninety-eight-degree water into ponds, which were stocked with tilapia, barramundi, sea ba.s.s, and striped ba.s.s for commercial production. After use in the fishponds, the water, which now contained waste products that made excellent fertilizer, was then used to irrigate olive and date trees. The kibbutz also found ways to grow vegetables and fruits that were watered directly from the underground aquifer. The kibbutzniks started pumping the ninety-eight-degree water into ponds, which were stocked with tilapia, barramundi, sea ba.s.s, and striped ba.s.s for commercial production. After use in the fishponds, the water, which now contained waste products that made excellent fertilizer, was then used to irrigate olive and date trees. The kibbutz also found ways to grow vegetables and fruits that were watered directly from the underground aquifer.

A century ago Israel was, as Mark Twain and other travelers described it, largely a barren wasteland. Now there are an estimated 240 million trees, millions of them planted one at a time. Forests have been planted all over the country, but the largest is perhaps the most improbable of all: the Yatir Forest.

In 1932, Yosef Weitz became the top forestry official in the Jewish National Fund, a pre-state organization dedicated to buying land and planting trees in what was to become the Jewish state. It took Weitz more than thirty years to convince his own organization and the government to start planting a forest on hills at the edge of the Negev Desert. Most thought it couldn't be done. Now there are about four million trees there. Satellite pictures show the forest sticking out like a visual typo, surrounded by desert and drylands in a place where it should not exist. FluxNet, a NASA-coordinated global environmental research project, collects data from over a hundred observation towers around the world. Only one tower is in a forest in a semi-arid zone: Yatir.

The Yatir Forest survives only on rain water, though only 280 millimeters (about eleven inches) of rain fall there each year-about a third of the precipitation that falls on Dallas, Texas. Yet researchers have found that the trees in the forest are naturally growing faster than expected, and that it soaks up about as much carbon dioxide from the atmosphere as lush forests growing in temperate climates.

Dan Yakir is a scientist at the Weizmann Inst.i.tute who manages the FluxNet research station at Yatir. He says that the forest not only demonstrates that trees can thrive in areas that most people would call desert, but that planting forests on just 12 percent of the world's semi-arid lands could reduce atmospheric carbon by one gigaton a year-the annual CO2 output of about one thousand 500-megawatt coal plants. A gigaton of carbon would also amount to one of seven "stabilization wedges" that scientists argue are necessary to stabilize atmospheric carbon at current levels. output of about one thousand 500-megawatt coal plants. A gigaton of carbon would also amount to one of seven "stabilization wedges" that scientists argue are necessary to stabilize atmospheric carbon at current levels.

In December 2008, Ben-Gurion University hosted a United Nationssponsored conference on combating desertification, the world's largest ever. Experts from forty countries came, interested to see with their own eyes why Israel is the only country whose desert is receding.12 The Israeli Leapfrog The kibbutz story is just a part of the overall trajectory of the Israeli economic revolution. Whether it was socialist, developmentalist, or a hybrid, the economic track record of Israel's first twenty years was impressive. From 1950 through 1955, Israel's economy grew by about 13 percent each year; it hovered just below 10 percent growth annually into the 1960s. Not only did Israel's economy expand, it experienced what Hausmann calls a "leapfrog," which is when a developing country shrinks its per capita wealth gap with rich first-world countries.13 Whereas economic growth periods are common in most countries, leapfrogs are not. A third of the world's economies have experienced a growth period in the past fifty years, but fewer than 10 percent of them have had a leapfrog. The Israeli economy, however, increased its per capita income relative to the United States' from 25 percent in 1950 to 60 percent in 1970. That means Israel more than doubled its living standard relative to that of the United States within twenty years.14 During this period, the government made no effort to encourage private entrepreneurship and, if anything, was rhetorically hostile to the notion of private profit. Though some of the government's political opponents did begin to oppose its heavy economic hand and antifree market att.i.tudes, these critics were a small minority. If the government had valued and sought to ease the path for private initiative, the economy would have grown even faster.

In retrospect, however, it is clear that Israel's economic performance occurred in part because of the government's meddling, and not just in spite of it. During the early stages of development in any primitive economy, there are easily identifiable opportunities for large-scale investment: roads, water systems, factories, ports, electrical grids, and housing construction. Israel's ma.s.sive investment in these projects-such as the National Water Carrier, which piped water from the Sea of Galilee in the north to the parched Negev in the south-stimulated high-velocity growth. Rapid housing development on kibbutzim, for example, generated growth in the construction and utilities industries. But it is important not to generalize: many developing countries engaged in large infrastructure projects waste vast amounts of government funds due to corruption and government inefficiencies. Israel was not a perfect exception.

Though infrastructure projects were perhaps the most visible element, even more striking was the deliberate creation of industries, as entrepreneurial projects, from within within the government. Shimon Peres and Al Schwimmer, an American who helped smuggle airplanes and weapons to Israel during the War of Independence, together dreamed up the idea of creating an aeronautics industry in Israel. When they pitched the idea within the Israeli government, in the 1950s, reactions ranged from skepticism to ridicule. At the time, staples like milk and eggs were still scarce and thousands of just-arrived refugees were living in tents, so it is not surprising that most of the ministers thought that Israel could neither afford nor be capable of succeeding in such an endeavor. the government. Shimon Peres and Al Schwimmer, an American who helped smuggle airplanes and weapons to Israel during the War of Independence, together dreamed up the idea of creating an aeronautics industry in Israel. When they pitched the idea within the Israeli government, in the 1950s, reactions ranged from skepticism to ridicule. At the time, staples like milk and eggs were still scarce and thousands of just-arrived refugees were living in tents, so it is not surprising that most of the ministers thought that Israel could neither afford nor be capable of succeeding in such an endeavor.

But Peres had David Ben-Gurion's ear, and convinced him that Israel could start repairing surplus World War II aircraft. They launched an enterprise that at one point was Israel's largest employer. Bedek eventually became Israel Aircraft Industries, a global leader in its field.

During this stage of Israel's development, private entrepreneurs may not have been essential because the largest and most pressing needs of the economy were obvious. But the system broke down as the economy became more complex. According to Israeli economist Yakir Plessner, once the government saturated the economy with big infrastructure spending, only entrepreneurs could be counted on to drive growth; only they could find "the niches of relative advantage."15 The transition from central development to a private entrepreneurial economy should have occurred in the mid-1960s. The twenty-year period from 1946 through 1966, when most of the large-scale infrastructure investments had been made, was coming to an end. In 1966, with no more frothy investment targets, Israel experienced for the first time nearly zero economic growth. This should have convinced Israel's government to open the economy to private enterprise. But instead, needed reforms were staved off by the Six-Day War. Within one week of June 6, 1967, Israel had captured the West Bank, Gaza Strip, Sinai Peninsula, and Golan Heights. Collectively, the territory was equal to more than three times the size of Israel.

Suddenly the Israeli government was once again busy with new large-scale infrastructure projects. And since the IDF needed to establish positions in the new territories, ma.s.sive spending was necessary for defense installations, border security, and other costly infrastructure. It was another giant economic "stimulus" program. As a result, from 1967 to 1968, investment in construction equipment alone increased by 725 percent. The timing of the war reinforced the worst instincts of Israel's central planners.

Israel's "Lost Decade"

Still, Israel's economy was living on borrowed time. Another war six years later, the Yom Kippur War of 1973, did not yield the same economic boost. Israel suffered heavy casualties (three thousand fatalities and many more wounded) and enormous damage to its infrastructure. Forced to mobilize large numbers of reserves, the IDF pulled most of the labor force out of the economy for up to six months. The effect of such a ma.s.sive and protracted call-up was jarring, paralyzing companies and even entire industries. Business activity came to a halt.

In any normal economic environment, private incomes among domestic workers would have experienced a corresponding decline. But in Israel they did not. Instead of allowing salaries to fall, the government artificially propped them up through a vehicle that resulted in extremely high levels of public debt. In order to try to offset the ballooning debt, every tax rate-including on capital investment-was raised. Short-term and high-priced debt was used to finance the deficit, which in turn increased interest payments.

All this coincided with a decline in net immigration. New immigrants have always been a key source of Israel's economic vitality. There had been a net gain of nearly one hundred thousand new Israelis between 1972 and 1973. But the number was down to fourteen thousand in 1974 and almost zero in 1975.

What made recovery especially unlikely-if not impossible-was the government's monopoly of the capital market. As the Bank of Israel itself described it at the time, "The government's involvement transcends anything that is known in politically free countries." The government set the terms and interest rate for every loan and debt instrument for consumer and business credit. Commercial banks and pensions were forced to use most of their deposits to purchase nonnegotiable government bonds or to finance private-sector loans for projects that had been earmarked by the government.16 This was the condition of Israel's economy during what is often described by economists as Israel's "lost decade," from the mid-1970s through the mid-1980s. Today, Intel's decision to search for scarce engineers in Israel seems like an obvious move. But the Israel that Intel found in 1974 was nothing like what it is today. While it may no longer have resembled an expanse of sand, swamps, and malaria, visitors during the 1970s might have been excused for thinking they had landed in a third-world country.

Israeli universities and Israel's engineering talent were by this time fairly advanced, but much of the country's infrastructure was antiquated. The airport was small, quaint, and shabby. It had a Soviet-style utilitarian feel as one arrived and entered immigration. There was no major road that could pa.s.s for a real highway. Television reception was shoddy, but it hardly mattered since there was only a single government-owned station broadcasting in Hebrew, along with a couple of Arabic channels that, with a powerful enough antenna, one could pick up from Jordan or Lebanon.

Not everyone had a telephone at home, and not because they all had cell phones, which didn't exist yet. The reason was that phone lines were still being slowly rationed out by a government ministry, and it took a long time to get one. Supermarkets, unlike the small food marts common in neighborhoods, were a novelty, and they did not carry many international products. Major international retail chains were nonexistent. If you needed something from abroad, you had to go yourself, or ask a visitor to bring it back for you. High customs duties-many of them protectionist attempts to coddle local producers-made most imports prohibitively expensive.

The cars on the road were a bland bunch-some produced in Israel (these became the b.u.t.t of jokes, much like locally produced Russian cars did in Russia) and a motley a.s.sortment of the cheapest models of mostly Subaru and Citroen, the two companies brave or desperate enough to defy the Arab boycott. The banking system and the government's financial regulations were as antiquated as the auto industry. It was illegal to change dollars anywhere except at banks, which charged government-set exchange rates. Even holding an overseas bank account was illegal.

The overall mood was dour. The euphoria that had come with the stunning 1967 victory-which some likened to first receiving a death-row pardon and then winning the lottery-quickly dissipated after the 1973 Yom Kippur War and was replaced with a renewed sense of insecurity, isolation, and, perhaps worst of all, tragic blunder. The mighty Israeli army had been utterly surprised and badly bloodied. It was scarce consolation that, in military terms, Israel had won the war. Israelis felt that their political and military leadership had badly failed them.

A public commission of inquiry was appointed; this led to the removal of the IDF's chief of staff, its chief of intelligence, and other senior security officials. Though the commission exonerated her, Prime Minister Golda Meir took responsibility for what was seen as a fiasco and resigned a month after the release of the commission's report. But her successor, Yitzhak Rabin, was forced to resign from his first stint as prime minister when, in 1977, it was revealed that his wife had a foreign bank account.

As late as the early 1980s, Israel also suffered from hyperinflation: going to the supermarket meant spending thousands of almost worthless shekels. Inflation rose from 13 percent in 1971 to 111 percent in 1979. Some of this was due to rising oil prices at this time. But Israeli inflation continued to skyrocket beyond other countries', rising to 133 percent in 1980 and to 445 percent in 1984, and appeared to be on its way to a four-digit figure within a year or two.17 People would h.o.a.rd phone tokens, since their value didn't change as their price rose sharply, and would rush to buy basic items in advance of expected price hikes. According to a joke of that time, it was better to take a taxi from Tel Aviv to Jerusalem than a bus, since you could pay the taxi at the end of the ride, when the shekel would be worth less.

A main reason for the hyperinflation was, ironically, one of the measures the government had taken for years to cope with inflation: indexing. Most of the economy-wages, prices, rents-were linked to the Consumer Price Index, a measure of inflation. Indexing seemed to protect the public from feeling the effects of inflation, since their incomes rose with their expenses. But indexing ultimately fed an inflationary spiral.

Path to Recovery?

In this context, it is especially striking that Intel set up shop in Israel in the 1970s. An even greater mystery, however, is how Israel transformed itself from this somewhat provincial and isolated state to a thriving and technologically sophisticated country three decades later. Today, visitors to Israel arrive in an airport that is often far more slickly modern than the one they departed from. Unlimited numbers of new phone lines can be set up with only a few hours' notice, BlackBerrys never lose reception, and wireless Internet is as close as the nearest coffee shop. Wireless access is so abundant that during the 2006 Lebanon war, Israelis were busy comparing what kind of Internet service worked best in their bomb shelters. Israelis have more cell phones per capita than anywhere else in the world. Most kids above the age of ten have a cell phone, as well as a computer in their bedroom. The streets are full of late-model cars, ranging from Hummers to European Smart cars that take up less than half of a scarce parking spot.

"Looking for a few good programmers?" CNNMoney.com recently asked in a feature listing Tel Aviv among the "best places to do business in the wired world." "So are IBM, Intel, Texas Instruments, and other tech giants, which have flocked to Israel for its tech savvy. . . . The best place to close a deal is at Yoezer Wine Bar, with its extensive selection of varietals and deliciously doused beef bourguignon."18 In 1990, though, there wasn't a single chain of coffee shops, and probably not a single wine bar, decent sushi restaurant, McDonald's, Ikea, or major foreign fashion outlet in all of Israel. The first Israeli McDonald's opened in 1993, three years after the chain's largest restaurant opened in Moscow, and twenty-two years after the first McDonald's in Sydney, Australia. Now McDonald's has approximately 150 restaurants in Israel, about twice as many per capita as there are in Spain, Italy, or South Korea. In 1990, though, there wasn't a single chain of coffee shops, and probably not a single wine bar, decent sushi restaurant, McDonald's, Ikea, or major foreign fashion outlet in all of Israel. The first Israeli McDonald's opened in 1993, three years after the chain's largest restaurant opened in Moscow, and twenty-two years after the first McDonald's in Sydney, Australia. Now McDonald's has approximately 150 restaurants in Israel, about twice as many per capita as there are in Spain, Italy, or South Korea.19 The second-phase turnaround began after 1990. Up to that point, the economy had a limited capacity to capitalize on the entrepreneurial talent that the culture and the military had inculcated. And further stifling the private sector was the extended period of hyperinflation, which was not addressed until 1985, when then finance minister Shimon Peres led a stabilization plan developed by U.S. Secretary of State George Shultz and IMF economist Stanley Fischer. The plan dramatically cut public debt, limited spending, began privatizations, and reformed the government's role in the capital markets. But this didn't yet generate for Israel a private and dynamic entrepreneurial economy.

For the economy to truly take off, it required three additional factors: a new wave of immigration, a new war, and a new venture capital industry.

CHAPTER 7.

Immigration The Google Guys' Challenge Immigrants are not averse to starting over. They are, by definition, risk takers. A nation of immigrants is a nation of entrepreneurs.

-GIDI G GRINSTEIN IN 1984 S 1984 SHLOMO (N (NEGUSE) MOLLA left his small village in northern Ethiopia with seventeen of his friends, determined to walk to Israel. He was sixteen years old. Macha, the remote village where Molla grew up, had virtually no connection to the modern world-no running water, no electricity, and no phone lines. In addition to the brutal famine that plagued the country, the Ethiopian Jews lived under a repressive anti-Semitic regime, a satellite of the former Soviet Union. left his small village in northern Ethiopia with seventeen of his friends, determined to walk to Israel. He was sixteen years old. Macha, the remote village where Molla grew up, had virtually no connection to the modern world-no running water, no electricity, and no phone lines. In addition to the brutal famine that plagued the country, the Ethiopian Jews lived under a repressive anti-Semitic regime, a satellite of the former Soviet Union.

"We always dreamed of coming to Israel," said Molla, who was raised in a Jewish and Zionist home. He and his friends planned to walk north-from Ethiopia to Sudan, Sudan to Egypt and through the Sinai Desert, and from Sinai to Israel's southern metropolis, Beersheba; after that, they would continue on to Jerusalem.1 Molla's father sold a cow in order to pay a guide two dollars to show the boys the way on the first leg of their journey. They walked barefoot day and night, with few rest stops, trekking through the desert and into the jungle of northern Ethiopia. There they encountered wild tigers and snakes before being held up by a band of muggers, who took their food and money. Yet Molla and his friends continued, walking nearly five hundred miles in one week to Ethiopia's northern border.

When they crossed into Sudan, they were chased by Sudanese border guards. Molla's best friend was shot and killed, and the rest of the boys were bound, tortured, and thrown in jail. After ninety- one days, they were released to the Gedaref refugee camp in Sudan, where Molla was approached by a white man who spoke crypti-cally but clearly seemed well-informed. "I know who you are and I know where you want to go," he told the teenager. "I am here to help." This was only the second time in Molla's life that he had seen a white person. The man returned the next day, loaded the boys onto a truck, and drove across the desert for five hours, until they reached a remote airstrip.

There, they were pushed inside an airplane along with hundreds of other Ethiopians. This was part of a secret Israeli government effort; the 1984 airlift mission, called Operation Moses, brought more than eight thousand Ethiopian Jews to Israel.2 Their average age was fourteen. The day after their arrival, they were all given full Israeli citizenship. The Their average age was fourteen. The day after their arrival, they were all given full Israeli citizenship. The New Republic New Republic's Leon Wieseltier wrote at the time that Operation Moses clarified "a cla.s.sic meaning of Zionism: there must exist a state for which Jews need no visas."3 Today Molla is an elected member of Israel's parliament, the Knesset; he is only the second Ethiopian to be elected to this office. "While it was just a four-hour flight, it felt like there was a gap of four hundred years between Ethiopia and Israel," Molla told us.

Coming from an antiquated agrarian community, nearly all the Ethiopians who immigrated to Israel didn't know how to read or write, even in Amharic, their mother tongue. "We didn't have cars. We didn't have industry. We didn't have supermarkets. We didn't have banks," Molla recalled of his life in Ethiopia.

Operation Moses was followed seven years later by Operation Solomon, in which 14,500 Ethiopian Jews were airlifted to Israel. This effort involved thirty-four Israeli Air Force and El Al transport aircraft and one Ethiopian plane. The entire series of transport operations occurred over a thirty-six-hour period.

"Inside Flight 9, the armrests between the seats were raised," the New York Times New York Times reported at the time. "Five, six or seven Ethiopians including children crowded happily into each three-seat row. None of them had ever been on an airplane before and probably did not even know that the seating was unusual." reported at the time. "Five, six or seven Ethiopians including children crowded happily into each three-seat row. None of them had ever been on an airplane before and probably did not even know that the seating was unusual."4 Another flight from Ethiopia set a world record: 1,122 pa.s.sengers on a single El Al 747. Planners had expected to fill the aircraft with 760 pa.s.sengers, but because the pa.s.sengers were so thin, hundreds more were squeezed in. Two babies were born during the flight. Many of the pa.s.sengers arrived barefoot and with no belongings. By the end of the decade, Israel had absorbed some forty thousand Ethiopian immigrants.

The Ethiopian immigration wave has proven to be an enormous economic burden for Israel. Nearly half of Ethiopian adults age twenty-five to fifty-four are unemployed, and a majority of Ethiopian Israelis are on government welfare. Molla expects that even with Israel's robust and well-funded immigrant-absorption programs, the Ethiopian community will not be fully integrated and self-sufficient for at least a decade.

"Given the context of where they came from not so long ago, this will take time," Molla told us. The experience of Ethiopian immigrants contrasts sharply with that of immigrants from the former Soviet Union, most of whom arrived at roughly the same time as Operation Solomon, and who have been a boon to the Israeli economy. The success story of this wave can be found in places like the Shevach-Mofet high school.

The students had been waiting for some time, with the kind of antic.i.p.ation usually reserved for rock stars. Then the moment arrived. The two Americans entered through a back door, shaking off the press and other groupies. This was their only stop in Israel, aside from the prime minister's office.

The Google founders strode into the hall, and the crowd roared. The students could not believe their eyes. "Sergey Brin and Larry Page . . . in our our high school!" one of the students proudly recalled. What had brought the world's most famous tech duo to this Israeli high school, of all places? high school!" one of the students proudly recalled. What had brought the world's most famous tech duo to this Israeli high school, of all places?

The answer came as soon as Sergey Brin spoke. "Ladies and gentlemen, girls and boys," he said in Russian, his choice of language prompting spontaneous applause. "I emigrated from Russia when I was six," Brin continued. "I went to the United States. Similar to you, I have standard Russian-Jewish parents. My dad is a math professor. They have a certain att.i.tude about studies. And I think I can relate that here, because I was told that your school recently got seven out of the top ten places in a math compet.i.tion throughout all Israel."

This time the students clapped for their own achievement. "But what I have to say," Brin continued, cutting through the applause, "is what my father would say-'What about the other three? ' " ' "5 Most of the students at the Shevach-Mofet school were, like Brin, second-generation Russian Jews. Shevach-Mofet is located in an industrial area in south Tel Aviv, the poorer part of town, and was for years notoriously one of the roughest schools in the city.

We learned about the history of the school from Natan Sharansky, the most famous former Soviet Jewish immigrant in Israel. He spent fourteen years in Soviet prisons and labor camps while fighting for the right to emigrate and was the best-known "refusenik," as the Soviet Jews who were refused permission to emigrate were called. He rose to become Israel's deputy prime minister a few years after he was freed from the Soviet Union. He joked to us that in Israel's Russian immigrant party, which he founded soon after his arrival, politicians believe they should mirror his own experience: go to prison first and then then get into politics, not the other way around. get into politics, not the other way around.

"The name of the school-Shevach-means 'praise,' " Sharansky told us in his home in Jerusalem. It was the second high school to open in Tel Aviv, when the city was brand-new, in 1946. It was one of the schools where the new generation of native Israelis went. But in the early 1960s, "the authorities started to experiment with integration, a bit like in America," he explained. "The government said we can't have sabra schools, we must bring in the immigrants from Morocco, Yemen, Eastern Europe-let's have a mix."6 While the idea may have been a good one, its execution was poor. By the beginning of the 1990s, when large waves of Russian Jewish immigrants began to arrive following the collapse of the Soviet Union, the school was one of the worst in the city and known mainly for delinquency. At that time, Yakov Mozganov, a new immigrant who had been a professor of mathematics in the Soviet Union, was employed at the school as a security guard. This was typical in those years: Russians with PhDs and engineering degrees were arriving in such overwhelming numbers that they could not find jobs in their fields, especially while they were still learning Hebrew.

Mozganov decided that he would start a night school for students of all ages-including adults-who wanted to learn more science or math, using the Shevach cla.s.srooms. He recruited other unemployed or underemployed Russian immigrants with advanced degrees to teach with him. They called it Mofet, a Hebrew acronym of the words for "mathematics," "physics," and "culture" that also means "excellence." The Russian offshoot was such a success that it was eventually merged with the original school, which became Shevach-Mofet. The emphasis on hard sciences and on excellence was not in name only; it reflected the ethos that new arrivals from the former Soviet Union brought with them to Israel.

Israel's economic miracle is due as much to immigration as to anything. At Israel's founding in 1948, its population was 806,000. Today numbering 7.1 million people, the country has grown almost ninefold in sixty years. The population doubled in the first three years alone, completely overwhelming the new government. As one parliament member said at the time, if they had been working with a plan, they never would have absorbed so many people. Foreign-born citizens of Israel currently account for over one-third of the nation's population, almost three times the ratio of foreigners to natives in the United States. Nine out of ten Jewish Israelis are either immigrants or first- or second-generation descendants of immigrants.

David McWilliams, an Irish economist who lived and worked in Israel in 1994, has his own colorful, if less-than-academic, methodology to ill.u.s.trate immigration data: "Worldwide, you can tell how diverse the population is by the food smells of the streets and the choice of menus. In Israel, you can eat almost any specialty, from Yemenite to Russian, from real Mediterranean to bagels. Immigrants cook and that is precisely what wave after wave of poor Jews did when they arrived having been kicked out of Baghdad, Berlin, and Bosnia."7 Israel is now home to more than seventy different nationalities and cultures. But the students Sergey Brin was addressing were from the single largest immigration wave in Israel's history. Between 1990 and 2000, eight hundred thousand citizens of the former Soviet Union immigrated to Israel; the first half million poured in over the course of just a three-year period. All together, it amounted to adding about a fifth of Israel's population by the end of the 1990s. The U.S. equivalent would be a flood of sixty-two million immigrants and refugees coming to America over the next decade.

"For us in the Soviet Union," Sharansky explained, "we received with our mothers' milk the knowledge that because you are a Jew-which had no positive meaning to us then, only that we were victims of anti-Semitism-you had to be exceptional in your profession, whether it was chess, music, mathematics, medicine, or ballet. . . . That was the only way to build some kind of protection for yourself, because you would always be starting from behind."

The result was that though Jews made up only about 2 percent of the Soviet population, they counted for "some thirty percent of the doctors, twenty percent of the engineers, and so on," Sharansky told us.

This was the ethos Sergey Brin absorbed from his Russian parents, and the source of the same compet.i.tive streak that Brin recognized in the young Israeli students. And it gives an inkling of the nature of the human resource that Israel received when the Soviet floodgates were opened in 1990.

It was a challenge to figure out what to do with an immigrant influx that, although talented, faced significant language and cultural barriers. Plus, the educated elite of a country the size of the Soviet Union would not easily fit into a country as small as Israel. Before this ma.s.s immigration, Israel already had among the highest number of doctors per capita in the world. Even if there had not been a glut, the Soviet doctors would have had a difficult adjustment to a new medical system, a new language, and an entirely new culture. The same was true in many other professions.

Though the Israeli government struggled to find jobs and build housing for the new arrivals, the Russians could not have arrived at a more opportune time. The international tech boom was picking up speed in the mid-1990s, and Israel's private technology sector became hungry for engineers.

Walk into an Israeli technology start-up or a big R&D center in Israel today and you'll likely overhear workers speaking Russian. The drive for excellence that pervades Shevach-Mofet, and that is so prevalent among this wave of immigrants, ripples throughout Israel's technology sector.

But it was not just an obsession with education that characterized the Jews who arrived in Israel, from wherever they came. If education was the only factor explaining Israel's orientation toward entrepreneurialism and technology, then other countries where students perform compet.i.tively on math and science standardized tests-such as Singapore-would be start-up incubators as well.

What the Soviet emigres brought with them is symptomatic of what Israeli venture capitalist Erel Margalit believes can be found in a number of dynamic economies. "Ask yourself, why is it happening here?" he said of the Israeli tech boom. We were sitting in a trendy Jerusalem restaurant he owns, next to a complex he built that houses his venture fund and a stable of start-ups. "Why is it happening on the East Coast or the West Coast of the United States? A lot of it has to do with immigrant societies. In France, if you are from a very established family, and you work in an established pharmaceutical company, for example, and you have a big office and perks and a secretary and all that, would you get up and leave and risk everything to create something new? You wouldn't. You're too comfortable. But if you're an immigrant in a new place, and you're poor," Margalit continued, "or you were once rich and your family was stripped of its wealth-then you have drive. You don't see what you've got to lose; you see what you could win. That's the att.i.tude we have here-across the entire population."8 Gidi Grinstein was an adviser to former prime minister Ehud Barak and was part of the Israeli negotiating team at the 2000 Camp David summit with Bill Clinton and Yasir Arafat. He went on to found his own think tank, the Reut Inst.i.tute, which is focused on how Israel can become one of the top fifteen wealthiest nations by 2020. He makes the same point: "One or two generations back, someone in our family was packing very quickly and leaving. Immigrants are not averse to starting over. They are, by definition, risk takers. A nation of immigrants is a nation of entrepreneurs."

Shai Aga.s.si, the founder of Better Place, is the son of an Iraqi immigrant. His father, Reuven Aga.s.si, was forced to flee the southern Iraqi city of Basra, along with his family, when he was nine years old. The Iraqi government had fired all its Jewish employees, confiscated Jewish property, and arbitrarily arrested members of the community. In Baghdad, the government even carried out public hangings. "My father [Shai's grandfather], an accountant for the Basra port authority, was out of a job. We were very scared for our lives," Reuven told us.9 With nowhere else to go, the Aga.s.sis joined a flood of 150,000 Iraqi refugees arriving in Israel in 1950. With nowhere else to go, the Aga.s.sis joined a flood of 150,000 Iraqi refugees arriving in Israel in 1950.

In addition to the sheer numbers of immigrants in Israel, one other element makes the role of Israel's immigration waves unique: the policies the Israeli government has implemented to a.s.similate newcomers.

There is a direct connection between the history of immigration policies of Western countries and what would become the approach adopted by Israel's founders. During the seventeenth, eighteenth, and nineteenth centuries, immigration to the United States was essentially open, and, at times, immigrants were even recruited to come to America to help with the settlement of undeveloped areas of the country. Until the 1920s, no numerical limits on immigration existed in America, although health restrictions applied and a literacy test was administered.

But as racial theories started to influence U.S. immigration policy, this liberal approach began to tighten. The U.S. House Judiciary Committee employed a eugenics consultant, Dr. Harry H. Laughlin, who a.s.serted that certain races were inferior. Another leader of the eugenics movement, author Madison Grant, argued in a widely selling book that Jews, Italians, and others were inferior because of their supposedly different skull size.

The Immigration Act of 1924 set new numerical limits on immigration based on "national origin." Taking effect in 1929, the law imposed annual immigration quotas that were specifically designed to prevent entrance of eastern and southern Europeans, such as Italians, Greeks, and Polish Jews. Generally no more than one hundred of the proscribed nationals were permitted to immigrate each year.10 When Franklin Roosevelt became president, he did little to change the policy. "Looking at Roosevelt's reactions over the full sweep of 1938 to 1945, one can trace a pattern of decreasing sensitivity toward the plight of the European Jews," says historian David Wyman. "In 1942, the year he learned that the extermination of the Jews was under way, Roosevelt completely abandoned the issue to the State Department. He never again dealt really positively with the problem, even though he knew the State Department's policy was one of avoidance-indeed, obstruction-of rescue."11 With the onset of World War II, America's gates remained barred to Jews. But the chief problem that faced Jews seeking refuge in the 1930s and the early 1940s was that America did not stand alone. Latin American countries opened their doors in only limited ways, while European countries, at best, tolerated only for a time the many thousands who arrived "in transit" as part of unrealized plans for permanent settlement elsewhere.12 Even after World War II ended and the Holocaust became widely known, Western countries were still unwilling to welcome surviving Jews. The Canadian government captured the mood of many governments when one of its officials declared, "None is too many!" British quotas on immigration to Palestine became increasingly tight during this period, as well. For many Jews, there literally was no place to go. is too many!" British quotas on immigration to Palestine became increasingly tight during this period, as well. For many Jews, there literally was no place to go.13 Deeply aware of this history, when Britain's colonial term in Palestine expired, on May 14, 1948, "The Declaration of the Establishment of the State of Israel" was issued by the Jewish People's Council. It stated, "The catastrophe which recently befell the Jewish people-the ma.s.sacre of millions of Jews in Europe-was another clear demonstration of the urgency of solving the problem of its homelessness. . . . THE STATE OF ISRAEL will be open for Jewish immigration."14 Israel became the only nation in history to explicitly address in its founding doc.u.ments the need for a liberal immigration policy. In 1950, Israel's new government made good on that declaration with the Law of Return, which to this day guarantees that "every Jew has the right to come to this country." There are no numerical quotas.

The law also defines as a Jew "a person who was born of a Jewish mother or has become converted to Judaism." Citizenship status is also granted to non-Jewish spouses of Jews, to non-Jewish children and grandchildren of Jews, and to their spouses, as well.

In the United States, an individual must wait five years before applying for naturalization (three years if a spouse of a U.S. citizen). U.S. law also requires that an immigrant seeking citizenship demonstrate an ability to understand English and pa.s.s a civics exam. Israeli citizenship becomes effective on the day of arrival, no matter what the language spoken by the immigrant, and there are no tests at all.

As David McWilliams describes it, most Israelis speak Hebrew plus another language, which was the only language they spoke upon arrival. In some Israeli towns, he says, "there is a Spanish-language paper published every day in Ladino, the medieval Spanish spoken by Sephardic Jews kicked out of Andalucia by Ferdinand and Isabella in 1492. . . . In Tel Aviv's busy Dizengoff Street, old cafes hum with German. The older German immigrants still chat away in Hoch Deutsch-the language of Goethe, Schiller, and Bismarck. . . . Further down the street, you are in little Odessa. Russian signs, Russian food, Russian newspapers, even Russian-language television are now the norm."15 Like Shai and Reuven Aga.s.si, there are also millions of Israelis with roots in the Arab Muslim world. At the time of Israeli independence, some five hundred thousand Jews had been living in Arab Muslim countries, with roots going back centuries. But a wave of Arab nationalism swept many of these countries after World War II, along with a wave of pogroms, forcing Jews to flee. Most wound up in Israel.

Crucially, Israel may be the only country that seeks to increase increase immigration, and not just of people of narrowly defined origins or economic status, as the Ethiopian immigration missions evidence. The job of welcoming and encouraging immigration is a cabinet position with a dedicated ministry behind it. Unlike the U.S. Citizenship and Immigration Service, which maintains as one of its primary responsibilities keeping immigrants out, the Israeli Immigration and Absorption Ministry is solely focused on bringing them in. immigration, and not just of people of narrowly defined origins or economic status, as the Ethiopian immigration missions evidence. The job of welcoming and encouraging immigration is a cabinet position with a dedicated ministry behind it. Unlike the U.S. Citizenship and Immigration Service, which maintains as one of its primary responsibilities keeping immigrants out, the Israeli Immigration and Absorption Ministry is solely focused on bringing them in.

If Israelis hear on the radio at the end of the year that immigration was down, this is received as bad news, like reports that there was not enough rainfall that year. During election seasons, candidates for prime minister from different parties frequently pledge to bring in "another million immigrants" during their term.

In addition to the Ethiopian airlifts, this commitment has been repeatedly, and at times dramatically, demonstrated. One such example is Operation Magic Carpet, in which, between 1949 and 1950, the Israeli government secretly airlifted forty-nine thousand Yemenite Jews to Israel in surplus British and American transport planes. These were poverty-stricken Jews, with no means of making their way to Israel on their own. Thousands more did not survive the three-week trek to a British airstrip in Aden.

But perhaps the least-known immigration effort involves postWorld War II Romania. About 350,000 Jews resided in Romania in the late 1940s, and although some escaped to Palestine, the Communist government held hostage others who wished to leave. Israel first provided drills and pipes for Romania's oil industry in exchange for 100,000 exit visas. But beginning in the 1960s, Romanian dictator Nicolae Ceausescu demanded hard cash to allow Jews to leave the country. Between 1968 and 1989, the Israeli government paid Ceausescu $112,498,800 for the freedom of 40,577 Jews. That comes out to $2,772 per person.

Against this backdrop, the Israeli government has made the chief mission of the Ministry of Immigrant Absorption the integration of immigrants into society. Language training is one of the most urgent and comprehensive priorities for the government. To this day, the ministry organizes free full-immersion Hebrew courses for new immigrants: five hours each day, for at least six months. The government even offers a stipend to help cover living expenses during language training, so newcomers can focus on learning their new language rather than being distracted with trying to make ends meet.

To accredit foreign education, the Ministry of Education maintains a Department for the Evaluation of Overseas Degrees. And the government conducts courses to help immigrants prepare for professional licensing exams. The Center for Absorption in Science helps match arriving scientists with Israeli employers, and the absorption ministry runs entrepreneurship centers, which provide a.s.sistance with obtaining start-up capital.16 There are also absorption programs supported by the government but launched by independent Israeli citizens. Asher Elias, for example, believes there is a future for Ethiopians in the vaunted high-tech industry in Israel. Elias's parents came to Israel in the 1960s from Ethiopia, nearly twenty years before the ma.s.s immigration of Ethiopian Jews. Asher's older sister, Rina, was the first Ethiopian-Israeli born in Israel.

After completing a degree in business administration at the College of Management in Jerusalem, Elias took a marketing job at a high-tech company and attended Selah University, then in Jerusalem, to study software engineering-he had always been a computer junkie. But Elias was shocked when he could find only four other Ethiopians working in Israel's high-tech sector.

"There was no opportunity for Ethiopians," he said. "The only paths to the high-tech sector were through the computer science departments at public universities or private technical colleges. Ethiopians were underperforming on the high school matriculation exams, which precluded them from the top universities; and private colleges were too expensive."

Elias envisioned a different path. Together with an American software engineer, in 2003 he established a not-for-profit organization called Tech Careers, a boot camp to prepare Ethiopians for jobs in high tech.

Ben-Gurion, both before and after the state's founding, had made immigration one of the nation's top priorities. Immigrants with no safe haven needed to be aided in their journey to the fledgling Jewish state, he believed; perhaps more importantly, immigrant Jews were needed to settle the land, to fight in Israel's wars, and to breathe life into the nascent state's economy. This is still seen as true today.

CHAPTER 8.

The Diaspora Stealing Airplanes Like the Greeks who sailed with Jason in search of the Golden Fleece, the new Argonauts [are] foreign-born, technically skilled entrepreneurs who travel back and forth between Silicon Valley and their home countries.

-ANNALEE S SAXENIAN TODAY," JOHN C CHAMBERS SAID AS HE TOOK LARGE sideways steps across the stage to ill.u.s.trate his point, "we're making the biggest jump in innovation since the router was first introduced twenty years ago." He was speaking into a cordless microphone at a 2004 Cisco conference. sideways steps across the stage to ill.u.s.trate his point, "we're making the biggest jump in innovation since the router was first introduced twenty years ago." He was speaking into a cordless microphone at a 2004 Cisco conference.1 Though he was in a business suit, the fifty-four-year-old chief executive of Cisco-which during the tech boom had a market value higher than General Electric's-looked like he might break into a dance routine. Though he was in a business suit, the fifty-four-year-old chief executive of Cisco-which during the tech boom had a market value higher than General Electric's-looked like he might break into a dance routine.

After properly building the drama, Chambers walked over to a large closetlike enclosure and opened the doors to reveal three complicated-looking boxes, each about the size and shape of a refrigerator. It was the CRS-1, in all its glory.