A

TERM PAPER ON

DEVELOPMENT EXPERIENCE OF AN ADVANCED NATION FROM THE

BIRTH OF THAT NATION TO THE PRESENT AGE (ISRAEL).

PREPARED BY GROUP 1

DEPARTMENT OF CHEMICAL ENGINEERING,

OBAFEMI AWOLOWO UNIVERSITY ILE-IFE, OSUN STATE.

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR TPD 502,

TECHNOLOGY POLICY

SUBMITTED TO: PROF. F.E OGBIMI

MARCH, 2017.
 INTRODUCTION

This term paper seeks to chronicle the history of an advanced nation from

their creation to the present age, in this section; the nation of Israel is focused on.

ISRAEL

A Brief History

The nation of Israel was created on the 14th of May 1948 after a Partition plan was

adopted by the United Nations General Assembly for the Palestine area and a declaration

was made by David Ben-Gurion of the establishment of a Jewish state (Galnoor, 2015).

Justification for choosing Israel as an advanced Nation

The suitability of the Israeli nation for this paper as an advanced nation is based

on the following statistics: Israel is ranked as the worlds 35th largest economy with a

nominal Gross Domestic Product of $327.630 billion (56th highest GDP in the world) and

a per capita GDP of $37,778 (23rd highest per capita GDP in the world), with the highest

standard of living in the middle east and the third highest standard of living in Asia

(Schleicherr, 2015).

The country has experienced rapid development of the agricultural and industrial

sectors and is largely self-sufficient in food (excluding grain and beef) despite very

scarce natural resources, this can be shown in the fact that imports to Israel worth
$77.59billion dollars (raw materials, military equipment, grains, fuels, e.t.c) are almost

counterbalanced by her exports (electronics, software, computerized systems,

communications technology, pharmaceuticals, military technology, fruits e.t.c) worth

$64.74billion

The country can also be described as advanced based on the strength of her

educational strength ranking as one of the countries with the highest percentage of her

citizens holding a tertiary education degree and Israeli Universities consistently ranked

among the 50 best universities in the world in computer science, mathematics and

chemistry, some of these universities are: Technion, Tel Aviv University, Hebrew

University of Jerusalem, and Weizmann Institute of Science with six nobel Laureates

since 2002, this can be further buttressed with the fact that Israel is ranked first in the

world according to OECD in expenditure on Research and Development (R&D) as a

percentage of GDP, this has resulted in rapid technological advancement as Israel has

become a global leader in cutting-edge technology such as water conservation,

geothermal energy, software, communications and so on. Major technological multi-

national corporations (the likes of IBM, Google, Apple, Motorola, Facebook, HP, Cisco

systems, Intel, Microsoft, among others.) have research and development facilities in the

country.

It has been said that Asian civilizations took 3,000 years to achieve their advanced

status, it took European civilizations 2,000 years to achieve the same while the United

States of America spent about 300 years to get to a developed nation status, however, the
nation of Israel since her creation in 1948 has required only about 60 years to achieve a

fiftyfold economic growth and seal her place in the committee of advanced nations.

The immigrant Effect

It is important to take a look at Israels history in relation to the technological and

economic progress discussed above, prior to the official formation of the sovereign state

of Israel, in 1880, a group of Jewish settlers settled in a town called Petach tikva, a short

distance from modern day Tel Aviv, they were a farming community near a river which

overflowed its banks and washed away their agricultural produce and mud cabins,

however, a new member who was an agricultural expert suggested the planting of

eucalyptus trees which soaked up the water and dried the swamps, preserving agricultural

produce and preventing cases of malaria and dysentery for the settlers, other families

joined them and it was in this manner that this Jewish settlement and others like it grew.

Other Jewish families joined these settlements in the Palestine area and assisted in

solving problems by innovation and the application of knowledge which is the baseline of

Israels advancement as a nation, more Jews migrated to the Palestine area and a sizable

Jewish community developed, however, the immigration rate soared beginning in the

1920s, through the 1930s and late 1940s as Adolf Hitlers Nazi anti-Semitism activities

increased and peaked during world war II, the Israeli founders (David Ben Gurion) and

others decided to create a Jewish state to absorb Jews fleeing Germany, other Nazi

occupied countries and other places where there were hostilities against Jews.
 The resulting immigrant situation had both a positive and a negative effect:

Positive in the sense that the crowd of Jews from all over the world were a potpourri of

people with various skills: Doctors, Engineers, Scientists, and various professionals who

were well educated and established in their various fields before coming to Israel and

they therefore formed the much required human and intellectual capital required to build

the fledgling nation. On the other hand, however, there were the logistics and managerial

problems of resettling millions of people in such a nascent country with scarce resources

and surrounded by hostile nations.

David Ben-Gurion often referred to as the father of modern Israel then

channeled the nations energy into nation building through a significant agricultural

revolution, this was powered by small communities of people called Kibbutz, (Gavron,

2000) agricultural settlements that were focused on equality and the cultivation of

agricultural produce for the nation, the kibbutz are less than 2% of the Israeli population

and yet are responsible for 12% of her exports.

These settlements were able to solve agricultural problems and were the herald of

the excellence in research that was to come, an example is the Hatzerim Kibbutz which

was located in the Southern Negev desert on a barren Hilltop, the community managed

to lay a six inch pipe to channel water in from an area about forty miles away in the

space of one year, however, during the war of Israels independence in 1948, the water

supply was cut off, and the community learned to flush the soil to be able to plant crops,

in the course of these challenges, the technology of drip irrigation was developed, it was

also discovered that the salty water, difficult to use in planting was applicable in raising
 fish that naturally grew in sea water. The overall growth of the Israeli economy has been

pushed by this kind of innovation and aptitude for problem solving.

The three periods of Israeli Economic growth

The rapid economic advance of Israel stated above can be divided into three

periods: a period of rapid advancement between 1948 and 1970, a period of inflation and

stagnation between 1970 and 1990, and a final period of accelerated development from

1990 till date (Dan Senor, 2009), the different periods will be discussed.

The first economic growth was majorly driven by government policy with very

limited participation by the private sector, capital projects were massively invested in by

the government such as a national water carrier which brought water from the sea of

galilee to the desert area of Negev in the south, rapid housing development in Kibbutizm,

and deliberate creation of industries as entrepreneurial projects (they went as far as

creating an aeronautics industries from used world war 2 planes), the Israeli economy

responded with a 13% increase per year between 1950 and 1955, and an increase in per

capita income relative to the United States from 25% in 1950 to 60% in 1970, this kind

of economic growth is referred to as an economic leapfrog (Reut, 2005). It is important

to note that the success of this economic boom was due to the relatively low level of

corruption among public officers because a corrupt system would lead to wastage of

funds earmarked for developmental projects especially in developing countries.

As opposed to expectations, this first period of economic growth was marked by a

strict control of economic factors by the government; this involved a legacy of informal
government meddling in the economy, an example of this can be seen in the managerial

style of Pinchas Sapir who was at different times finance minister and minister of trade and

industry during the 1960s and 1970s, his economic policy was so micro that he established

different foreign currency exchange rates for different factories called the 100

exchange rate methodand 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. It is worthy of note that this sort of iron hand control of the economy might be what

is being attempted to practice by the present Nigerian administration, however, this may

not work in the Nigerian situation for two basic reasons:

i. The rampant and prevalent corruption among Nigerian public officers.

ii. The size of the Nigerian economy itself is quite large and therefore may not be

amenable to idealistic economic principles as opposed to the initial structure of

the Israeli economy.

It is worthy of note that 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 largescale 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

Israels 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, massive

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 Israels central planners.

The second period was characterized by an economic decline which began towards

the end of the first period described above (around 1968) this was due to the fact that

infrastructure construction had peaked and there was the absence of the massive funds

pumped into the economy, however the country chose not to lower salaries of workers

and the effect was massive borrowing to finance the economy and a consistent budget

deficit, the Yom Kippur war of 1973 coincided with this; 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 massive 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 rateincluding on capital investmentwas 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 Israels 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 unlikelyif not impossiblewas the governments monopoly of the capital

market. As the Bank of Israel itself described it at the time, The governments

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 non-negotiable government bonds or to finance private-

sector loans for projects that had been earmarked by the government. This was the

condition of Israels economy during what is often described by economists as Israels

lost decade, from the mid-1970s through the mid-1980s. Today, Intels 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 thirdworld country. Israeli universities and

Israels engineering talent were by this time fairly advanced, but much of the countrys

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 pass 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 didnt 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 dutiesmany of them were attempts to

provide incentives for local producersmade most imports prohibitively expensive., this

led to inflation soaring from 13% in 1971 to around 111% in 1979 and about 130% in

1980 and 450% in 1985, and appeared to be on its way to a four-digit figure within a year

or two. (David, 2001).

As late as the early 1980s, Israel also suffered from hyperinflation: going to the

supermarket

meant spending thousands of almost worthless shekels continued to skyrocket beyond

other countries People would hoard phone tokens, since their value didnt 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 economywages, prices, rentswere 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.

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 the finance minister Shimon

Peres led a stabilization plan developed by U.S. secretary of state, George Shultz and

IMF economist Stanley Fischer which dramatically cut public debt, limited spending,

gave the private sector a large girth in the economy and reformed the governments role,

another important driver of the economic growth was a new wave of immigrants from

Russia (the old soviet union) and Ethiopia, they were educated in the already effective

educational system and formed part of personnel who were involved in the private sector

that also contribute majorly to the second economic leap frog which has been

maintained till date, transforming Israel to a developed economy. But this didnt 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 (which has

been mentioned), a new war, and a new venture capital industry.

Science and Technology Education in the Israeli Economic Miracle

The effect of science and technology education on this economic development

will be analyzed below: To be sure, Israel is a leader in the international academic

community. A global 2008 survey by Scientist magazine named two Israeli institutions

the Weizmann Institute and the Hebrew University of Jerusalemas the top two best

places to work in academia outside the United States. Economist Dan Ben-David

pointed us to a study by two French academics that rank nations outside the United States

according to publications in top economic journals between 1971 and 2000. The United

Kingdomincluding the London School of Economics, Oxford, and Cambridgecame

in at number two. Germany had fewer than half as many publications per faculty member

as the British had. And Israel was number one. Not five or ten percent more, but seven

times morein a league of our own, Ben-David crowed to us. And as good as Israels

economists are, our computer scientists are apparently even better, relative to their field.

We have two Nobel Prizes recently in economics, and one or two in chemistry.

Another observation is the informality in Israeli society referred to as Chutzpah,

theres an easy accessibility between subordinates and bosses and this is extended to the

classrooms and lecture halls, therefore, students learn more effectively under

circumstances like this where they are able to question their lecturers and therefore

broaden their knowledge. Also, it is of significant importance that the Israeli science and

technology educational structure is intensely practical based and hands-on, after the

secondary level of education (referred to as high school in some climes), students are

made to undergo a compulsory two-year national programme involving military service

and an intensive math and science curriculum, after which they can choose to proceed to

any of the nations universities or continue in the military as officers, during this two year

programme, students are divided into groups and made to solve real life problems

encountered in the military by the application of the mathematical and scientific concepts

learnt, this helps to bring alive seemingly abstract topics and bolster basic understanding.

It is also important to note that the military service aspect of the National service

programme engenders responsibility in individuals, having had to handle challenging

situations in the constant battles the nation has to fight against her belligerent neighbors.

The military environment exposes young people to situations where they have to think on

their feet and make instant life-and-death decisions. They also have to learn discipline.

They learn about training their mind to do things especially if they are in the front line or

doing something operational. This sort of discipline and mental stamina is taken into the

business world. This maturity is especially powerful when mixed with an almost childish

impatience.

Since their countrys founding, Israelis have been keenly aware that the future-

both near and distant- is always in question. Every moment has strategic importance. As

Mark Gerson, an American entrepreneur who has invested in several Israeli start-ups,

described it, When an Israeli man wants to date a woman, he asks her out that night.

When an Israeli entrepreneur has a business idea, he will start it that week. The notion

that one should accumulate credentials before launching a venture simply does not exist.

This is actually good in business. Too much time can only teach you what can go wrong,

not what could be transformative.

Contribution of Productivity to Israels Growth [Imitator]

Israel benefited from technological advances made in other countries, and especially in

countries with which it engages extensively in foreign trade. Israels foreign R&D capital

stock, calculated as the trade-weighted average of the R&D capital stocks of its principal

trading partners, rose by 60 percent in this period. The elasticity of productivity with

respect to the foreign R&D capital stock is proportional to the level of openness of the

economy, as measured by the share of imports in GDP. Using the Coe and Helpman

(1995) estimates, we find that knowledge spillovers contributed 8 percent to GDP

growth, i.e., one-fifth of TFP growth in the Israeli economy. The results are presented in

Table 1. GDP rose by 137 percent in 197190, TFP contributing three-tenths (41 percent)

of this. When the increase in TFP is decomposed into the contribution of education,

domestic R&D, and foreign R&D respectively, we find that education contributed 12

percent, domestic R&D 17 percent, and foreign R&D 8 percent, together accounting for

the entire increase in TFP. To sum up, Israels economy grew faster than average, but not

exceptionally fast. Compared with countries at a similar level of development, Israel is by

no means a shining example. Seven-tenths of the rise in its GDP is explained by an

increase in hours worked and investment in machinery, structures, and equipment, so that

most of its growth was through sweat and tears. Nonetheless, this investment was made

possible, to a large extent, by the increase in productivity, which in turn was fed by

improved levels of schooling, investment in R&D, and knowledge spillovers from other

countries. R&D investment has the highest rate of return. In the US, for example, it was

estimated that this high rate of return justifies the doubling of R&D investment, even

though the US R&D capital stock is far higher than Israels.

Table 1: Contribution of Productivity to growth, and its components; Israel, 1971-90

Percent

Business-sector product 137

Total factor productivity 41

Contribution of education 12

Domestic R&D 17

Foreign R&D 8

Similar estimates do not exist for Israel, however. Nevertheless, based on the level of

schooling and the stock of R&D, it is reasonable to presume that there exists in Israel

considerable growth potential that has not been tapped into so far.

Threats to Israels continued Economic dominance

But despite all this success, Ben-David is worried. He told us that Israels academic lead

has lessened in recent years, and will fall further as older faculty members retire and

many of the rising stars leave to teach abroad. In his own field, economics, Ben-David

pointed to a study that found that of the top thousand economists in the world, as

measured by citations of their work between 1990 and 2000, twenty-five were Israelis,

thirteen of whom were actually based in Israel. Since that study was published, only four
of these have remained in Israel full-time. And none of the twelve Israelis working

abroad in 2000 have returned to Israel. In total, an estimated three thousand tenured

Israeli professors have relocated to universities abroad.

Ben-David is one of those four top economists who remain in Israel. And he is

sounding the alarm on Israels continued economic growth. From 2005 through 2008,

Israel grew substantially faster than most developed countries. But there was a recession

the previous few years so, Ben-David argues, all weve done is return to the long-term

path. Were not in uncharted territory; we are where we should have been had we not had

the recession. The problem, according to Ben-David, is that while the tech sector has

been surging ahead and becoming more productive, the rest of the economy has not been

keeping up. Its like an engine, he says. You have all the cylinders in the engine. You

have all the population in the country. But were using fewer and fewer of the cylinders

to move this machine forward. In essence, the tech sector is financing the rest of the

country, which is not getting the tools or the conditions to work in a modern economy.

There are lessons to be learnt for our country Nigeria from Israels developmental

story, the first thing is that the government actually has to understand the problem of the

economy. They also need to understand that investment and providing incentives for

private firms is not the solution to the problem. Secondly, a solid science and technology

educational frame work, this is evidenced in the various technological institutions

mentioned above, thirdly and finally, the Israeli educational system is such that after the

secondary education, students proceed on a compulsory two year military and

science/mathematics programme, this helps in fostering national unity and patriotism, it

can be drawn from this that the National Youth Service Corps (NYSC) if restructured and

properly implemented may be beneficial to Nigeria in the long run.

 Bibliography
Dan Senor, S. S. (2009). Start-Up Nation. The Story of Israel's Economic Miracle. New
York: Hachette Book Group.

David, R. (2001, January). "Inflation-the Rise and Fall". Retrieved from Ministry of
foreign Affairs Web site: http://www.mfa.gov.il

Galnoor, I. (2015). The Partition of Palestine: Decision Crossroads in the Zionist

Movement. SUNY Press.

Gavron, D. (2000). The Kibbutz: Awakening from Utopia. Lanham, Md.: Rowman &
Littlefield.

Reut. (2005). "Israel 15 vision". Retrieved from Reut Institute: http://www.reut-

institute.org/event.aspx?EventId=6

Schleicherr, A. (2015, July 4). ISRAEL - Education at a glance 2013.

LIST OF GROUP 1 MEMBERS

S/N NAMES MATRIC No SIGNATURE

1 ISOWAMWEN Osakpolo Faith PHY/2011/015

2 ATETEDAYE Ajibola Emmanuel CHE/2008/005

2 ABIDOYE Ahmed Kayode CHE/2011/001

3 ABIODUN Micah Olumuyiwa CHE/2011/002

4 ABIOLA Aanuoluwapo Priscilla CHE/2011/003

5 ABIOYE Mary Abimbola CHE/2011/004

6 ADAMOLOJA Oluwaseun Thomas CHE/2011/005

7 ADEBAJO Ayobamidele Damilola CHE/2011/006

9 ADEBAYO Yusuf Tunde CHE/2011/008

10 ADEDIPE Ayooluwa Isaiah CHE/2011/009

11 ADEGBAJU Rebecca Oluwaseun CHE/2011/010

12 ADEGBESAN Mojirade Mathilda CHE/2011/011

13 ADEJUMO Moses Tolu CHE/2011/012

14 ADEPOJU Babatunde O CHE/2011/013

15 ADEROMOLA Yetunde Esther CHE/2011/014

16 ADEYEMI David CHE/2011/015