Start-up Nation (28 page)

The vast majority of the region’s economic activity is driven by the production and refinement of hydrocarbons. The non-oil
GDP
exported by the entire Arab world—with a population of approximately 250 million people—is less than that of Finland, with
a population of 5 million. Outside of oil, there are some successful multinationals, such as UAE-based Emirates Airlines,
Egypt-based Orascom Telecom, and Jordan-based Aramex, a logistics support provider. (Orascom and Aramex were founded and built
by savvy entrepreneurs.) Family-owned service businesses are also prominent and—in the case of countries like Egypt—textiles
and agriculture, too. But the oil industry is by far the biggest contributor to the region’s
GDP
. The region produces almost one-third of the world’s oil and 15 percent of the world’s gas.

There is an ever-increasing growth in demand for oil, with China and India the most prominent examples of countries that need
more oil. Beginning in 1998, India and China’s combined demand increased by a third in less than a decade. So however much
the price of oil fluctuates, the demand is undergoing a global transformation.

But the Arab world’s oil economy has stymied high-growth entrepreneurship. Distributing oil wealth largesse to the masses
has insulated governments in the Persian Gulf from pressure to reform politically and economically. Oil wealth has cemented
the power of autocratic governments, which do not have to collect taxes from their citizens and therefore do not need to be
terribly responsive to their complaints. As historians of the Muslim world have put it, in Arab countries “the converse of
a familiar dictum is true: No representation without taxation.”
¹²

The badly needed reforms that the elites regard as a threat—the right to free expression, tolerance of experimentation and
failure, and access to basic government economic data—are necessary for a culture in which entrepreneurs and inventors can
thrive. For precisely all the reasons that entrepreneurship helps economies grow and societies progress—it rewards merit,
initiative, and results rather than status—the Persion Gulf governments have stifled it. This is what political scientist
Samuel Huntington once called the “king’s dilemma”: all modernizing monarchs ultimately try to balance economic modernization
with limits on liberalization, since liberalization challenges the monarch’s power. In the Arab world, British journalist
Chris Davidson, author of
Dubai: The Vulnerability of Success
, calls this the “sheikh’s dilemma.”

With the exception of Lebanon and Iraq, there has never been a genuinely free election in any of the other twenty-two Arab
League countries. After one attempt at an election in the
UAE
in 2006 attracted low voter turnout, a prominent member of the government remarked, “This is particularly disappointing given
that all of the candidates and participants were from very good families, and were all personally approved by the UAE’s rulers.”
¹³

A number of Persian Gulf Arab governments have sought to work around the “sheikh’s dilemma” by using oil wealth to modernize
the hard infrastructure of their economies, while leaving the political structures virtually untouched. Income from the previous
oil booms—in the 1970s—was not absorbed by the regional economies but, rather, spent on imports from the West, investments
overseas, and military arms. The local economies saw little direct benefit. But since 2002, over $650 billion from this new—demand-driven—oil
windfall have been reinvested in the gulf economies alone.

Alongside the cluster strategy adopted by Dubai and a number of other gulf Arab countries, much of the region’s oil revenues
have gone into real estate development. The
GCC
real estate sector has been the fastest growing in the world. Between 2000 and 2010, an estimated 19.55 million square yards
of new leasable space—new office buildings, shopping malls, hotels, industrial facilities, and housing developments—will have
been added in the region, mostly in Saudi Arabia and the
UAE
, growing at 20 percent annually during this period. (China’s annual growth in leasable space was 15 percent.)

But as in much of the rest of the world, the Persian Gulf real estate bubble has burst. As of early 2009, residential and
commercial values in Dubai, for example, have declined by 30 percent and are expected to plummet further. Home owners have
actually been abandoning their homes and just leaving the country—to avoid the prospect of imprisonment for failure to pay
a debt. Large-scale construction projects have been frozen.

Neither oil nor real estate nor clusters have built a high-growth entrepreneurial or innovation economy.

With the demographic time bomb ticking, the gulf’s oil-rich governments have also tried to build academic research clusters.
Every technology cluster has a collection of great educational institutions. Silicon Valley famously got its start in 1939
when William Hewlett and David Packard, two Stanford University engineering graduates, pooled their funds of $538 and founded
Hewlett-Packard. Their mentor was a former Stanford professor, and they set up shop in a garage in nearby Palo Alto.

But the Arab world’s cultural and social institutions, as was reported by a U.N.-sanctioned committee of Arab intellectuals,
are chronically underdeveloped. The United Nations’ Arab Human Development Report, which presented the organization’s research
from 2002 through 2005, found that the number of books translated annually into Arabic in all Arab countries combined was
one-fifth the number translated into Greek in Greece. The number of patents registered between 1980 and 2000 from Saudi Arabia
was 171; from Egypt, 77; from Kuwait, 52; from the United Arab Emirates, 32; from Syria, 20; and from Jordan, 15—compared
with 7,652 from Israel. The Arab world has the highest illiteracy rates globally and one of the lowest numbers of active research
scientists with frequently cited articles. In 2003, China published a list of the five hundred best universities in the world;
it did not include a single mention of the more than two hundred universities in the Arab world.
¹⁴

Recognizing the importance of universities for R&D, which is necessary for patents and innovation, Saudi Arabia is opening
the King Abdullah University of Science and Technology, to create a research home for twenty thousand faculty and staff members
and students. It will be the first university in Saudi Arabia to have male and female students in the same classes. Qatar
and the
UAE
have established partnerships with iconic Western academic institutions. Qatar’s Education City houses satellite campuses
for Weill Cornell Medical College, Carnegie Mellon University’s computer science and business administration programs, a Georgetown
University international relations program, and a Northwestern University journalism program. Abu Dhabi—one of the seven emirates
in the UAE—has established a satellite campus for New York University. The idea is that if Arab countries can attract the
most innovative researchers from around the world, it will help stimulate an innovation culture locally.

But these new institutions have not made much progress. They cannot recruit a reliable stable of foreign academic talent to
lay roots and make a long-term commitment to the Arab world. “It has been more about bringing education brands to the gulf
than immigrating and assimilating brains,” Chris Davidson told us. “These universities are focused on national reputation
building, not real innovation.”
¹⁵

Israel’s case was different. Top-notch universities were founded well before there even was a state. Professor Chaim Weizmann,
a world-renowned chemist who helped launch the field of biotechnology with his invention of a novel method of producing acetone,
commented on this oddity at the inauguration of the Hebrew University of Jerusalem on July 24, 1918: “It seems at first sight
paradoxical that in a land with so sparse a population, in a land where everything still remains to be done, in a land crying
out for such simple things as ploughs, roads, and harbours, we should begin by creating a centre of spiritual and intellectual
development.”
¹⁶

The Hebrew University’s first board of governors included Weizmann, Israel’s first president, as well as Albert Einstein,
Sigmund Freud, and Martin Buber. The Technion was founded in 1925. The Weizmann Institute of Science followed in 1934 and,
in 1956, Tel Aviv University—the largest university in Israel today. Thus by the late 1950s, Israel’s population was only
around the two million mark and the country already had the seeds of four world-class universities. Other major universities,
such as Bar-Ilan University, University of Haifa, and Ben-Gurion University of the Negev, were founded in 1955, 1963, and
1969, respectively.

Today, Israel has eight universities and twenty-seven colleges. Four of them are in the top 150 worldwide universities and
seven are in the top 100 Asia Pacific universities. None of them are satellite campuses from abroad. Israeli research institutions
were also the first in the world to commercialize academic discoveries.

In 1959 the Weizmann Institute established Yeda (which means “knowledge” in Hebrew) to market its research. Yeda has since
spawned thousands of successful medical technology products and companies. Between 2001 and 2004, the institute amassed one
billion shekels (more than $200 million) in royalty revenues. By 2006, Yeda was ranked first in income royalties among world
academic institutes.
¹⁷

Several years after the creation of Yeda, the Hebrew University founded its own technology transfer company, called Yissum
(a word for “implementation” in Hebrew). Yissum earns over $1 billion annually in sales of Hebrew University–based research
and has registered 5,500 patents and 1,600 inventions. Two-thirds of its 2007 inventions were in biotechnology, a tenth were
in agricultural technology, and another tenth were in computer science and engineering products. The research has been sold
to Johnson & Johnson,
IBM
, Intel, Nestlé, Lucent Technologies, and many other multinational companies. Overall, Yissum was recently ranked twelfth—after
ten American universities and one British university— in global biotech patent rankings (Tel Aviv University is ranked twenty-first).

Israel, a nation of immigrants, has continually been dependent on successive waves of immigration to grow its economy. It
is in large part thanks to these immigrants that Israel currently has more engineers and scientists per capita than any other
country and produces more scientific papers per capita than any other nation—109 per 10,000 people.
¹⁸
Jewish newcomers and their non-Jewish family members are readily granted residency, citizenship, and benefits. Israel is
universally regarded as highly entrepreneurial and—like the IDF—dismissive of the strictures of hierarchy.

In the Persian Gulf, however, governments will allow residency visas for only up to three years, nothing longer—even for fellow
Muslims and Arabs. There is no path to citizenship in these countries. So globally sought-after researchers have been unwilling
to relocate their families in meaningful numbers and invest their careers in an institution whose host country stifles free
speech, academic freedom, and government transparency and puts a time limit on residency. While five- or ten-year residency
visas have been considered in several gulf Arab countries, no government has ever ultimately allowed for them.

These residency restrictions are also symptomatic of a larger obstacle to attracting academics: the few research professionals
who have shown up quickly became aware of the government’s desire to keep them on the outskirts. The laws emanate from the
pressure on governments to be responsive to Arab nationalism broadly, and sovereign nationalism specifically. For example,
an Emirati woman who marries an expat must give up her citizenship, and their children will not be issued a
UAE
passport or any of the government’s welfare benefits.

One of the major challenges to a high-growth entrepreneurial culture elsewhere in the Arab world—beyond just the gulf—is that
the teaching models in primary and secondary schools and even the universities are focused on rote memorization. According
to Hassan Bealaway, an adviser to the Egyptian Ministry of Education, learning is more about systems, standards, and deference
rather than experimentation. It is much more the
Columbia
model than the
Apollo
.

This emphasis on standardization has shaped an education policy that defines success by measuring inputs rather than outcomes.
For example, according to a study produced by the Persian Gulf offices of McKinsey & Company, Arab governments have been consumed
with the number of teachers and investments in infrastructure—buildings and now computers—in hopes of improving their students’
performance. But the results of the recent Trends in International Mathematics and Science Study ranked Saudi students forty-third
out of forty-five (Saudi Arabia was even behind Botswana, which was forty-second).
¹⁹

While the average student-teacher ratio in the
GCC
is 12 to 1—one of the world’s lowest, comparing favorably with an average of 17 to 1 in
OECD
countries—it has had no real positive effect. Unfortunately, international evidence suggests that low student-teacher ratios
correlate poorly with strong student performance and are far less important than the quality of the teachers. But the education
ministries in most Arab countries do not measure teacher performance. Inputs are easier to measure, through a methodology
of standardization.

Focusing on the number of teachers has particularly harmful implications for boys in the Arab world. Many government schools
are segregated by gender: boys are taught by men, girls by women. Since teaching positions have traditionally been less appealing
to men, there is a shortage of teachers for boys. As a result of the smaller talent pool, boys’ schools often employ lower-quality
teachers. In fact, the
GCC
gender gap in student performance is among the most extreme in the world.