I'd like to acknowledge the presence of Israel's President, Shimon Peres, who's been one of the architects of Davos, a regular participant, and he will be given a special award tomorrow, which he much deserves. And of course, I'd like to acknowledge the presence of my wife: she's here too, so… and my delegation. It's good to see all of you. Many of you have been to Israel or are already in Israel. I don't mean as tourists, but as investors, and if you're not, I hope that by the end of my talk, you will be.
Israel is often called the Start-Up Nation. I call it the Innovation Nation. The future belongs to those who innovate. Those who don't innovate, whether in companies or in countries, will fall behind. Innovation is the only way to consistently add value to your products and services in an increasingly competitive global economy. And Israel is a global center for innovation, and by that I mean two things. It's a center not only for science and technology, but for the indispensable ingredient of entrepreneurship. It's the man or woman who has an idea – sometimes a child almost, young men and women – who have an idea. And that idea takes science and technology and turns it into a workable plan that can actually profit and grow. So Israel is the epicenter of world innovation right now.
But before I tell you about it, I have to briefly digress because you mentioned the fact that I was here in '97. I digress on something that you cannot innovate on. You must have an economy that follows the rules of economic gravity. They are no different in Israel or in Nepal or in Columbia or anywhere else. And unless you keep to fundamental rules, the platform that you seek to have to have all these thousands of start-up companies take off. They won't take off – they'll crash and sink with your economy.
So to have an economy that is run soundly, you have to observe certain principles. The first one is very simple, but I say that to those of you who are in the audience who run states. The most important rule, number one is: don't spend over time more than you bring in. You can't afford it. And the second is, of course to maintain a sound macro-economic policy. I say that because we have done it in Israel and we are doing it now. To do that is not easy.
A short time after I was here, in 2003, I became the Finance Minister. The economy was shrinking. Inflation was growing at 7% a year. Our unemployment was at 11%. One of our major banks was in danger of collapse. It would have taken our entire banking system with it, and you know what that does. We've already learned what that does. So, when I took over as Finance Minister, I sought to give an explanation to the Israeli public of what it is that we have to do. And what we had to do then was what we have to do and are continuing to do now.
I described my first day in the Israeli army, in the paratroopers. The commander put us all in line and he said, "Now, you're going to take special race," and he pointed to me, the first man on the line. He said, "Look to the man on your right and put him on your shoulders". I did. He was a pretty big guy, about my size. The next guy, he said, was the smallest man in the platoon. He said, "Put the guy to your right on your shoulders". And he got the biggest guy in the platoon. And the third soldier, who was a big guy, received a small person; and so on. And then the commander blew the whistle and I could barely take a few steps. The little guy who was carrying the biggest guy in the platoon collapsed. And the third guy shot forward like a rocket and took the race.
I said in the international economy – I said then, I say now – in the global economy, all national economies are pairs of a public sector sitting on the shoulders of a private sector, who has to carry the race.
In our case, ten years ago in Israel, the guy at the top, the fat guy, the fat man became too fat and we had to put him on a diet. Hard to do; we had to cut government spending. We had to give a lot of oxygen to the thin man at the bottom, which meant cutting taxes; and we did. And then we had to remove all the barriers to the competition, ditch a fence, a wall, so that the thin man could run forward and compete. What we did then, we must do now; and we are.
We just passed a bill in the government to fight cartels and monopolies, and I think that this is most interesting, the most important condition. It's a prerequisite for innovation, requiring no innovation, but requiring a lot of political will and a lot of clarity. So conceptually, it's very easy to do. Politically it's very difficult, but necessary.
And since then, we've grown at roughly 4.6% a year with the decade that has followed. We've brought down our debt to GDP ratio from over 100% to about 67%, where it is now. We've brought down our inflation and we've brought down our unemployment. It's now about 6%. So we have that macro-economic platform, and any of you thinking of coming to Israel, you're coming to a well-managed country. We have our problems, as does everyone, but we manage it.
Now, innovation. It's not enough to have some macro-economic policy. You know, nobody ever got rich by balancing their checkbooks. You just avoid bankruptcy. But it doesn't make you prosperous. What I've just described doesn't make you rich.
But Israel is becoming prosperous because of something else, and that is the ability to add that value through innovation. And the question is: why is it? What is it that we have, aside from good macro-economic policies, aside from market reforms, what is it that makes Israel this nexus of high technology?
Because we have, as I said, thousands of start-up companies. And people have tried to crack the code of Israel. You have endless delegations coming to us from many countries and they are trying to figure out: can we do what you do? We don't mind – we try to share with everyone, as I'm trying to do here. But I want to tell you why I think it would be very useful for you and us to make partnerships. There is something special that we have in Israel.
Everybody has their own specialization. Everybody has their own advantages.
Here's our advantage: the concentration of exceptionally gifted hi-tech start-up companies in Israel, I believe is a function of five things.
First, a curse that has been turned into a blessing: our defense needs. We have had to have a very robust defense, so we take the best and the brightest of our young people in the military, and we put them in our various operations and then three years later, they come out. This is a perpetual machine that produces knowledge workers and knowledge entrepreneurs who are very, very gifted. This is reason number one, and I think that this produces a human resource that is unique.
The second is research, we have excellent research institutions and universities. You know some of them of course, the Technion, the Weizmann Institute and our other exceptional universities. They produce an inordinate share of Nobel Prize winners for Israel and I think that tells you a lot of what it is. We also spend 5% of our GDP on R&D. I think it's the – a bit less than 5%, but it's still the highest number of any country.
Third, I think there's a special culture. The Jewish people have always treasured education and knowledge. In ancient times we were effectively the only literate people that I know of, because every father teach his son, not his daughter but his son how to read the Bible. And that brought us through the Middle Ages and into modern time with literary capacity. That was unusual.
When the walls of the ghetto broke down with the French Revolution, that discipline burst out into many, many areas: into physics and mathematics, into chemistry and so on. There was a culture there. So, from the Talmud to Einstein, the Jewish people were always asking questions, truth was never finite. It never ended. There was an iterative process from Jewish communities around the world trying to find out what is the right thing, what is the true thing? And that questioning mind, I think, is something that is in our culture and I think adds very much to our capacities.
Fourth, size: we're very small. I mean, really small, like the size of New Jersey or Wales. And so everything is close by and everyone is close to everyone else. Everybody competes with each other and collaborates with each other. There is an ongoing vibrant cross fertilization. So technology that is used for missiles can be put in a camera in a pill that goes into a digestive system to find out how healthy you are and where you are not healthy. The technology that is used to track data flow is used to track water flows and so on.
And the fifth reason I think is because we have no choice. I don't think any people in the world has been given the situation of the Jewish people, and to survive, we had to innovate. We didn't have abundant natural resources. We were outnumbered; we were facing constant threats. Our neighbors even imposed upon us an economic boycott. Some world powers imposed upon us a weapons boycott. We had to innovate to survive.
The birth of modern Israel, remember, was an innovation. The rebirth of the Hebrew language was an innovation. The rebirth of agriculture in our land, something we hadn't done for 2,000 years, was an innovation. It changed our capacities in a very, very short time and we became a key player in the world community.
This penchant of these five factors that converged together has created a unique situation where is this innovation nation, and we produce more conceptual products per-capita than any other country on Earth. I think most of you, possibly all of you, know this. So the question is: what can Israel give you?
I think in a nutshell, we can be your science and technology incubator. And I think for all of you, for any business and for any country, the ability to create, to have R&D centers or R&D investments or product development investments that allow you to seize the future, to be constantly on the cutting edge is a competitive requirement for all of us. I think that low tech is disappearing. Hi-tech seeps into every crack, into every corner, changing the face of our world. I've just come from an illuminating luncheon with some of the leading IT executives and companies in the world, and it's very clear that there is an abundant opportunity here, tremendous opportunity – the internet of things and the internet of everything. Everything is moving very, very rapidly. Everything is becoming digital. And Israel is active in just about every field, just about every field. I can't say every field, but in just about every field that I heard discussed in Davos and that I hear that you are discussing, Israel is there.
I recently met the head of an international company that has R&D operations around the world. His company presented a problem to all their offices. He said to me that only in Israel was he told that he wasn't asking the right question. And I think that he should been doing it in a different way. By the way, I get that every five minutes as Prime Minister, but these are very valuable insights. These are out of the box insights that make the difference; they give you the competitive edge.
So I think that for countries and companies alike, the ability to come and partake in this Israeli incubator in your specific field is something that will enhance your competitive advantage. I have no doubt about that, and many of you, as I said, are doing it, and as I learn from talking to you yesterday and today, you're thinking of expanding it and competing for those minds and those talents.
But there are two areas that I want to draw your attention to in the vast scheme of things this is changing and it's changing beyond belief everywhere – in health, in science and technology. We're digitizing Israel – we're doing a Digital Israel, running fast fiber throughout the country, and we can see the possibilities are endless, both in healthcare and in delivering classes and delivering quality of life that is unheard of, in closing social gaps between those who have and have not. Everybody must have. Everybody must have the ability to be there and we're talking about, for example, the Arab youth of Israel or the Orthodox – getting them to this new world I think is important. It closes the gaps and it could happen as well in our region as a whole. But there are two areas that are specifically addressed in Israel that I draw your attention to.
The first is sustainability, sustainable development and Israel leads in questions water, food, renewable energy and many others. I'll give you an example on water. We need water and there's not enough water in the world, or it's not distributed in the right way and sometimes even if it's there, it's not clean. Our population has increased tenfold and our rainfall is half of what it was when Israel was founded. But we don't have a water problem. Why? Because we lead the world in re-using water. We're the number one recycler of water, a little less than 80%. The next country is 25%. Whose cows produce the most milk? Don't guess: it's Israel. It’s a computerized cow. Every "moo" is computerized and we increased the productivity. And this is something that can be available to populations across the world. We do make it available. In food, in dairy products, in water, in energy – when you think about sustainability, think Israel.
And there's another area that I specifically talked about an hour ago, which I think is important. All the limitless possibilities that you see on the internet are being challenged by one thing and that is the question of cyber security, or if you will, cyber insecurity and the question of the invasion of our privacy. Is the age of privacy over? The major engine of global economic growth is the internet. The internet has to be protected. You would not leave your bank account open or money on the table or your door open, but effectively unless we have that protection, everybody is exposed. There are no rules of the game and we enter chaos. So Israel leads in the question cyber protection – without which the internet economy cannot move forward.
We believe that the hundreds of companies that have been established in Israel in the last few years – hundreds – in cyber security can be your partners. We know that the major cyber firms are already in Israel and they are discovering how true that is, but I think that every country and every company today has a vested interest to have the protection of privacy and cyber security. These are not always identical. There's often conflict between the two, but it is something that we in Israel think that we can contribute to. I think that you should also know that we are making, as a government a massive investment in this area. We intend to be in the top three – I think we are in the top three in the question of cyber security and cyber protection. We believe that we should safeguard the individual. We think that individuals around the world, millions and millions of people, billions of people, should know that their accounts are inviolable, that their money is safe, that their privacy is assured. This is the world you want to see and Israel can help make that world a realization.
So I encourage you to come in and join us with this, and I think this will be good not only for you and not only for us, but also for peace. The investment in the growth of the Israeli economy is good for our society and it's also good for our neighbors, whether they realize it or not. I believe that in the peace negotiations, advancing the economic peace alongside the political peace – one does not replace the other, but it could facilitate the other. I think this is a tremendous contribution to peace. I think it's a way to also close gaps within Israel and between Israel and its neighbors. That may not be evident yet between us and our neighbors, but I think it will be evident in the future.
So I think this is an investment in peace, an investment in the economic peace assists the development of political peace. It could be of great benefit to all our neighbors, but especially to the Palestinians because we've had some beginnings of cooperation, including in the hi-tech field, between Israeli entrepreneurs and Palestinian entrepreneurs. I believe it could also be a force that would move the entire region forward, but of course the region, as you know, has other problems which we will discuss.
Israel has so much to offer the Middle East, to correct a great misperception. Israel is not what's wrong with the Middle East; Israel is what's right in the Middle East, and I think our relationship with our neighbors doesn't have to be a zero sum game; there could be great gain for all.
So my message to you is very simple: the future belongs to those who innovate. Israel is a great seller of innovation. This is an invitation to the innovation nation. Israel is open for business; it's open for your business. Please come and join us! Thank you.