How to reduce the cost of living using technology, technology-enabled services and "Smallness"
Shai Agassi, the founder of Better Place, deeply understood one of Israel’s core competitive advantages. Despite the dramatic implosion and failure of Better Place, Shai’s instinct to build a network of electric cars in Israel was, and is, completely correct.
I was reminded of this in the Q&A section of a talk I gave to Jerusalem entrepreneurs last week. Someone in the audience asked me: “How can we lower the cost of living in Israel, using some of the technologies you mentioned?”
I should be reminded of this every day while struggling in traffic around the new Tel Aviv Subway construction project. That subway has wandered through Israeli bureaucracy for 40 years. Now, it will cost $3 – $5Bn (conservatively) and take 5-7 years for the first phase! Like most subway projects, I am sure it will end up over the original budget in both time and money.
“Uber!” I told the questioner. “UberPool is reducing the cost of transportation in San Francisco and other cities dramatically. Uber Pool has cut the cost of SHARED transportation (think Sherut taxis in Israel) from the Airport in San Francisco to the city by almost 50%. I took a NYC taxi today in one direction and it cost me $18 before the tip. I took UberPool back to the same place and it cost me $10.71 including the tip. There is your 40% drop in the cost of transportation.
Uber is also saving tens of lives daily because its availability is predictable enough to cause people to leave their cars at home and not drive home drunk. Uber has reduced car ownership and is taking cars off the road by increasing utilization of cars. Ultimately, when self-driving cars become a reality in 3-5 years, Uber will further reduce the cost of transportation even more, because drivers are the biggest cost in transportation.”
All of the above, save money, reduce congestion and reduce the number of cars on the road. Cars are expensive in Israel. They are taxed around 100% (the government is addicted to automobile taxes). Taxis are much cheaper vehicles because they are barely taxed. So if everyone used Ubers or Israeli “On Demand transit” company Via or something else like it, we would be consuming a resource that is much cheaper to rent than to own. In Israel, buses are not cheap either, I assume that is the case because drivers are expensive (see chart below) and because of the VAT levied on top of the bus fare.
— Benedict Evans (@BenedictEvans) August 26, 2015
So why was Shai Agassi’s instinct right? Aside from bleeding edge innovation, Israel’s core advantage is that it is small. You can make something, even a network, happen in the entire country end to end with comparatively less complexity than in a big country like the US, Germany or the UK. As Minister Aryeh Deri wrangled this week with the Finance ministry to reduce VAT on public transportation to zero as a way to lower the Cost of Living, I was reminded how short sighted our government is.
Here is an alternative for the Israeli government: take the $3-$5Bn of the Tel Aviv subway budget (it will be more), take the tax reductions from the Zero VAT on public transportation and grow a backbone against the Taxi union and Egged bus drivers. Then take a flight to Silicon Valley and a car to Mevasserret Zion just outside Jerusalem. Offer to invest $10Bn with Google, Apple, Tesla, and/or Uber. You could afford to invest much more but start there. Ask Mobileye in Mevasseret Zion to come advise you. Suggest that Israel will be the first country in the world with a driverless, autonomous vehicle transportation system from A-Z. Driverless car pools from Tel Aviv to Eilat for vacation and from Sderot to Tel Aviv for work.
Tell Google, Apple, Tesla, Uber, Mobileye and Nexar that we will ban cars from the center of cities and get parking off the roads (parking takes up a lane for traffic). Israel will be the perfect showcase for their vision of the Autonomous Vehicle future. In one dramatic decision that will take less than a decade to happen, we could reduce deaths and injuries from car accidents, which is a deathly and expensive plague in Israel. We could make the periphery accessible to the center of the country, we would reduce the cost of transportation and the time people spend on the roads. And sitting together in autonomous Uber Pools or Vias, we may even meet different people and create a more cohesive society instead of arguing with the driver. And, we will bring innovation at scale to Israel, helping us enjoy the upside of those company’s big investments.
Here is another idea: We should push to make all transportation in Israel electric within 10 years. 100%. There is a pretty simple way to execute this that has already been proven: We should make car charging absolutely free for 5 years. When the government wanted to reduce emissions, the Israel Tax Authority led by Eran Yaacoby lowered taxes on “greener” cars and it worked.
Electrification of the roads and vehicles will reduce costs and will make us greener. Look at the chart above. The cost of solar is falling at a rate almost equal to Moore’s law and energy storage and batteries are not far behind. That means that if the roads are electrified, we can get abundant free solar energy and our transportation system will be ready for it. This is especially true because of Israel’s small size which makes energy transmission cheaper and easier to implement. Here too, by being the end to end testing ground, we will get the attention of big corporate money and give ourselves a futuristic infrastructure to innovate on top of.
Driverless vehicles are around the corner. Google says they will have one in 2-3 years. Ford said 4. Tesla’s, which uses Israeli technology from Mobileye, is already semi-autonomous and saving lives. Israel is a leader in autonomous vehicle innovation from Mobileye to Nexar and others. Cheap solar energy is around the corner as well. We need to leapfrog the world and lower our cost of living at the same time. All of this will require great coordination and partnership between the private innovation sector and the government. Let’s use our small size to our advantage and bring leading edge innovation, government and thinking to Israel. Then we will be a much Better Place to live.
To learn more about how we can benefit from our small scale and competitive advantages, visit my blog, The Hummus Manifesto – Part 3
Disclosures: Benchmark, where I am a partner, is an investor in Uber. Aleph, my firm that I invest from currently, is an investor in Nexar. I am short Mobileye’s (NASDAQ MBLY) stock in the Public markets but wish I had been an early stage investor in it.
Thanks to Eran Shir, Ron Gura and others for their feedback on the postShow comments