Silicon kibbutznik

Entrepreneurs like Erel Margalit have helped Israelis rediscover their genius for business.

For a change, good news out of Israel, and it's news that is probably little known: within the last 15 years this country of fewer than 7 million people has become the number two power in the technological world, second only to the United States.

The person who describes this revolution, and illustrates what makes this country tick, is Erel Margalit. Born on an Israeli kibbutz 45 years ago - a communal settlement - he is a "millionaire socialist" who says he connects the world of capital to the world of the great inventors. Ari Shavit, interviewing him in Haaretz newspaper, notes that the $700 million he has raised through his Jerusalem venture capital company in the last decade has spawned more than $2 billion.

During the collapse in the economic-technological bubble, "Israel stood out as one of the only two global centers capable of continuing to produce in the roughest period," says Margalit. "The Israelis proved they can come up with new ideas even in bad times. With new horizons. They are extraordinarily adaptable."

He says: "Israel has effectively become the world's research and development laboratory. The big-league technology is now being developed in California, around Boston and in Israel. The public does not always grasp the dimensions of the revolution that was fomented here. Within 15 years we became a central factor, considered to be a leading player by the Americans, the Chinese and the Europeans. A true revolution.

"Israel has more companies that are traded on Nasdaq than any country in Europe. The number of Israeli companies on Nasdaq is approaching that of all the European countries combined. We're the strongest country in this sphere apart from the United States, stronger even than Canada." Where does this come from?

"There is tremendous energy here," he says. "Many people still don't comprehend the force of the creative power here. We had science, which was always part of the Jewish people. And there was [prime minister] Ben-Gurion's emphasis - that if Israel was going to stand up to the Arab world it would have to preserve a technological advantage. And then in the 1980s, a few American companies came, bringing along with them American management culture. That was followed in the 1990s by venture capital.

"It was like throwing a match into a field of dry straw. It was as though all the elements were here and waiting, and suddenly erupted. What was stored up in academia and in the security realm was suddenly realized economically and companies were born out of nothing, with incredible quality and at an incredible rate. Israel became one big start-up."

Margalit says there is also something deeper at work. When his grandfather arrived, at the beginning of the 20th century, his name was Kaufmann, whose roots are in the German for "merchant". He changed his name to Avraham Ikar, meaning "farmer", "because there was a feeling, as the state was being established, that we had come here not to make a profit but to be a nation on our soil.

"That's why the notion of profit, which is very powerful in the Jewish genius, became almost anathema in the new Israeli ethos. Until the arrival of high-tech. High-tech made it possible for the Jewish mother to be proud of her son for inventing and not just rushing to make a profit. So it caught on. It integrated the old ethos and the new ethos. To that one could add the commercial abilities and the I-can-do-anything feeling of the Jewish entrepreneurs, together with science and information and intelligence.

That turned the high-tech people into the new farmers. It gave us that ultra-Israeli capability to create something out of nothing."