Daniel sent us this one — he's thinking about a paradox that anyone who's spent time in Israel has felt but maybe couldn't name. On one hand, the country is obsessed with regulation. The driving test is famously brutal, the Standards Institute has invented a plug type used literally nowhere else on Earth, and the bureaucracy can be crushing. On the other hand, once you're through the gate, enforcement is often nonexistent. You drive on Israeli roads and it's the Wild West. He's asking why small, innovation-driven societies end up in this trap, and what the opposite lesson looks like. There's a lot here.
Let's start with the most visible symbol of this paradox — the thing you literally plug into the wall. The SI thirty-two plug. This is Israel's unique three-pin standard, mandatory since nineteen eighty-nine. Two flat pins, one cylindrical pin, sixteen amps, two hundred fifty volts. It is incompatible with every major global standard. Not the European CEE seven-seven, not the UK BS thirteen sixty-three, not the US NEMA. If you move to Israel, every device you bring needs an adapter or a plug swap.
Which is not a voltage issue. Israel runs on two hundred thirty volts, fifty hertz, same as Europe. This is purely a connector decision. And it's not like the UK plug, which at least has a story — fused pins, shutters on the sockets, genuinely safer design. The SI thirty-two doesn't even have that argument going for it.
And that decision was made by the Israeli Standards Institute — the ISI — a semi-governmental body that funds itself through certification fees. This is the key institutional detail. The ISI doesn't get a big government budget allocation. It charges manufacturers to certify their products. Every device sold in Israel needs ISI approval. And if the standard is unique, then every importer has to come to the ISI for certification. If Israel just used the European plug, importers could self-declare conformity with CE marking and move on. There would be no gate to pass through.
The ISI has a financial incentive to keep standards unique.
That's the mechanism. It's not a conspiracy, it's just institutional design. The ISI's revenue depends on being the gatekeeper. If the gate disappears, so does the revenue. So you get SI thirty-two — a plug that adds an estimated five to fifteen percent to the cost of every imported electronic device. The annual cost to Israeli consumers across all imported electronics is estimated at fifty to a hundred million dollars.
That's a tax. A hidden tax, but a tax.
A tax that doesn't show up in any government budget. It's paid at the checkout counter. And here's the thing — Israeli electronics companies that export have to produce to international standards anyway. So the local standard isn't protecting local industry, it's just adding cost. If you're an Israeli manufacturer making power strips for export, you're building European plugs for the European market and then doing a separate production run with SI thirty-two for the domestic market. That's not a competitive advantage, that's just friction.
We should be precise about what that friction looks like in practice. Imagine you're a small appliance importer bringing in coffee machines from Italy. The Italian manufacturer already has CE certification for the European market. That's done. But to sell in Israel, you now need to either convince them to do a separate production run with a different plug — which they'll only do at high volume — or you import them as-is and do the plug swap locally, which means opening every box, paying a technician, and recertifying the modified product. Either way, you're adding cost that your competitor in Greece or Portugal simply doesn't have.
That cost gets passed to the Israeli consumer. The coffee machine that costs eighty euros in Athens costs the equivalent of ninety-five in Tel Aviv. For the exact same machine with a different plug. And this is the body that also handles things like toy safety, appliance efficiency, construction materials. The plug is just the most tangible example.
And the plug matters because it's the one standard every single person encounters. Every phone charger, every laptop, every kitchen appliance. You can't avoid it. But the same logic applies across the board. The ISI has proliferated unique standards for all kinds of products, and each one creates a certification requirement that funds the institute.
What's fascinating is how this connects to something Daniel mentioned — the fintech sandbox. Let's talk about what happened there, because it's the exact same pattern in a different domain. Israel launched a regulatory sandbox in twenty seventeen, designed to attract foreign fintech startups. The idea was — come test your product in Israel with lighter regulatory requirements, and if it works, scale up.
Which sounds great in the press release.
It attracted about thirty participants by twenty twenty. But most of the foreign firms withdrew.
Because the sandbox didn't actually solve the problem.
It added a layer on top of the problem. The underlying compliance burden — reporting requirements, capital requirements, data localization rules — all of that was still there. The sandbox gave you a slightly easier path through some of it, but the core complexity remained. So a foreign fintech looking at Israel sees a small market of nine million people, a unique regulatory environment that doesn't translate to any other market, and compliance costs that don't scale down. The math doesn't work.
If you're building a payments app and you've already done the compliance work to operate across the EU — PSD2, GDPR, all of it — that investment amortizes across four hundred fifty million consumers. To enter Israel, you need to do a whole new compliance process for a market that's two percent the size. Even if the sandbox waives some fees, the legal work, the regulatory analysis, the operational adjustments — those are fixed costs. They don't shrink just because the market is smaller.
This is the pattern. You create a unique standard, it generates compliance costs, those costs deter entry, and the market stays small and expensive. Then the response is — we need more regulation to fix this. Which creates more unique standards.
It's a flywheel of friction. And it connects directly to what Daniel was saying about the driving system, which is the perfect microcosm. Let me lay out the numbers on this. Israel requires twenty-eight mandatory driving lessons. That's more than most European countries. Germany requires about twelve to fourteen special driving sessions plus theory. The UK has no mandatory minimum at all — you just need to pass the test. Israel also has a rigorous theory exam, and the practical test fails about forty percent of first-time takers.
On paper, one of the most rigorous driver training systems in the developed world.
Now look at the road. Israel ranks in the bottom third of OECD countries for road safety metrics. Tailgating is constant. Lane discipline is a suggestion. Indicators are apparently optional equipment. And enforcement of these things is near-zero. You can drive for years without ever seeing a traffic stop for tailgating.
I've been in taxis where the driver is watching a video on his phone while merging across three lanes without signaling. This is not an exaggeration.
That's the paradox in one image. The system is designed to produce technically trained drivers through an exhaustive process. But once the license is issued, the rules become optional. The training is rigorous, the enforcement is absent. And here's the knock-on effect — everyone learns this. Every new driver in Israel discovers within about a week that the rules they just spent months learning are not actually rules. They're suggestions. And they adjust their behavior accordingly.
Which creates a culture of selective compliance. You learn which rules are actually enforced and which aren't. Tax filing is rigorously enforced, so everyone complies. Driving rules aren't, so nobody does.
This selective compliance undermines the legitimacy of all regulation. When people see that some rules are optional, they start questioning why any rules should be followed. It's corrosive. You end up with the worst of both worlds — the cost and friction of heavy regulation, plus the chaos of weak enforcement.
This is what Daniel was getting at with the "Wild West" feeling. It's not that there are no rules. It's that the rules are everywhere and also nowhere.
To understand how we got here, we need to look at the institution that creates these standards and the incentives that drive it. The ISI was established with a mandate that included, quote, protecting local industry. That's the language. And for a young country building its manufacturing base, that made a certain kind of sense. If you require local certification, you create jobs in testing labs. If you have a unique plug, you create a small captive market for local electrical manufacturers.
The world changed. Supply chains globalized. Israeli electronics manufacturing largely moved to China like everyone else's. The protectionist logic evaporated, but the institution and its incentives remained.
This is the key point about institutional inertia. The ISI isn't staffed by villains. It's staffed by people doing their jobs within a system that rewards creating and maintaining unique standards. If you're a standards engineer at the ISI, your career is built on expertise in Israeli-specific standards. Harmonizing with international standards doesn't just reduce revenue — it reduces your professional relevance.
There's a great analogy here from the history of railroad gauges. In the nineteenth century, different railway companies used different track widths. Once a company had laid hundreds of miles of track at a specific gauge, they had every incentive to resist standardization — even though standardization would benefit everyone. The engineers who specialized in that gauge, the maintenance crews, the equipment manufacturers — they all had careers built on the uniqueness. Same dynamic with the ISI.
Compare this to Singapore. Small country, post-colonial, strong national identity, built an economy from scratch. Singapore deliberately chose to harmonize with international standards — UK plug, English common law, international accounting standards. They didn't invent a Singapore-specific electrical standard. They didn't create unique banking regulations just to be different.
Singapore looked at the problem and said — we're a small market, we can't afford to be unique. Uniqueness is expensive. So they made themselves easy to plug into. And the result is lower cost of living, higher foreign investment, and a thriving export sector. Singapore consistently ranks in the top five globally for ease of doing business.
Israel chose the opposite path and got the opposite result. Higher costs, lower investment, a less competitive export sector. And it's not just economics — there's an identity dimension here. Small societies often use unique regulations as a form of identity assertion. "We are different, and our standards reflect that.
I get the impulse. You want to signal that you're not just a small country adopting whatever the big countries decide. But the SI thirty-two plug doesn't make Israel safer or more innovative. It just makes everything more expensive. The identity benefit is minimal, and the economic harm is substantial and measurable.
There's a clinical term for this, actually. Not in medicine — in policy. It's called the "regulatory uniqueness tax." And it applies to more than just plugs. Banking compliance, product certification, food standards — each layer of uniqueness adds cost. Daniel's advice about avoiding Israeli financial institutions is basically a response to this tax. The banks are expensive, slow, and bureaucratic because they're operating in a regulatory environment that was built for a different era and never reformed.
We have this pattern of rigorous rules and lax enforcement. But what happens when that pattern becomes the norm across multiple dimensions of life? You get a society where people develop an almost instinctive ability to navigate around rules. It becomes a skill. "How do I get this done without actually going through the official process?" And that skill, once developed, applies everywhere.
It's entrepreneurial in the wrong direction. Instead of building businesses, you're building workarounds.
This is where the connection to the startup ecosystem gets really interesting. Israel is famous for having more startups per capita than almost anywhere. The "Startup Nation" brand is real. But most of those startups are built to serve global markets from day one. They incorporate in Delaware, bank in the US, and treat Israel as an R and D center, not a market. They've learned to route around the local regulatory environment entirely.
Which means the local economy doesn't benefit from the startup activity the way it should. The startups are physically in Israel, employing Israelis, but they're not serving Israeli consumers or building Israeli market infrastructure. They've opted out.
That's the tragedy of this paradox. Israel produces world-class innovation but can't seem to apply it to its own domestic economy. The same country that gave us Waze, which revolutionized navigation for hundreds of millions of people, has roads where enforcement is so lax that the app's real-time hazard reporting is basically a public safety necessity.
Let's look at the opposite lesson. Small country, post-Soviet, built its institutions from scratch in the nineteen nineties. Estonia deliberately chose to harmonize with EU standards, adopt digital-first governance through their X-Road system, and minimize unique local regulations. They use the European plug. They use EU banking regulations. They made a conscious decision not to be special.
The result is remarkable. Estonia consistently ranks in the top ten globally for ease of doing business. They have a thriving startup ecosystem — Skype, TransferWise, Bolt — but unlike Israel, those companies often stay rooted in Estonia. The digital governance infrastructure is so good that you can do almost anything online. Tax filing takes minutes. Starting a company takes hours. There's no unique plug, no unique banking regulations, no unique certification requirements. Just efficient, interoperable systems.
Estonia didn't sacrifice its identity. They have a strong national culture, a distinct language, a unique history. They just decided that economic regulation wasn't the place to express that identity. They chose their battles.
That's the actionable question for policymakers. Before creating a unique local standard, ask three things. One — does this provide a genuine safety or quality benefit that international standards don't? Two — is the economic cost of uniqueness justified by that benefit? Three — can we achieve the same goal through enforcement of international standards rather than creation of local ones?
For the SI thirty-two plug, the answers are no, no, and yes. There's no evidence the plug is safer than the European equivalent. The cost is fifty to a hundred million dollars a year. And Israel could simply adopt the European standard and enforce it through existing mechanisms.
The driving system is even more stark. The rigorous training doesn't produce safer roads because the enforcement isn't there. If Israel took half the energy it puts into the driving test and put it into traffic enforcement, road safety would almost certainly improve. More rules aren't the answer — better enforcement of fewer, simpler rules is.
For businesses operating in small markets, this is a real factor in market entry decisions. You need to price in the regulatory uniqueness tax. Israel's plug standard, banking compliance, and product certification requirements add an estimated ten to twenty percent to operating costs compared to a harmonized market like Singapore or Estonia. That's not just a cost — it's a signal about the broader regulatory environment.
For individuals — especially expats and remote workers moving to a small country — research the regulatory friction before you go. The cost of living impact from unique standards won't show up in any cost-of-living calculator. You'll just notice that electronics are more expensive, banking is harder, and getting things done takes longer. Check whether the country harmonizes with international standards or creates its own.
If this is the problem, what's the solution? Let's look at societies that did it differently. Singapore and Estonia show that harmonization doesn't mean losing identity. It means being strategic about which battles you fight. Both countries have strong national identities. Both participate actively in international standards bodies. They're not passive adopters — they're active participants who happen to conclude that interoperability is worth more than uniqueness.
The mechanism for change is the hard part. The ISI isn't going to reform itself. It has a financial incentive to maintain the status quo. Change will require either external pressure — like EU trade agreements that require harmonization — or a domestic political coalition that prioritizes cost of living over protectionism. And cost of living has become a major political issue in Israel. Housing, food, electricity, banking — these are the things that decide elections.
The current government has talked about regulatory reform. But talking about it and doing it are different things. The ISI is a powerful institution with allies in industry and government. Any reform that reduces its revenue will face serious pushback.
Here's the cautionary tale for other countries. As more nations consider "digital sovereignty" regulations — data localization, unique tech standards, domestic cloud requirements — Israel's experience is a warning. The desire for uniqueness can easily become a self-inflicted economic wound. Once you create a unique standard, you create a constituency that benefits from maintaining it. The ISI didn't set out to make Israeli consumers poorer. It just followed its institutional incentives. And decades later, the cost is baked into every electrical device sold in the country.
There's a broader point here about the relationship between rules and trust. In a high-trust society, you can have fewer rules because people generally follow norms. In a low-trust society, you get more rules, but they're enforced selectively, which further erodes trust. It's a cycle. Israel's regulatory paradox is partly a symptom of a society that doesn't quite trust its institutions and doesn't quite trust its citizens.
That's the deepest layer of this. The driving test is so rigorous because the system doesn't trust people to learn properly. But once they're on the road, the system doesn't enforce the rules because it doesn't trust itself to enforce them consistently. So you get the worst of both — high barriers to entry, low ongoing standards.
Daniel's question was about why small, innovation-driven societies end up in this trap. I think the answer is — they don't have to. It's a choice. Singapore and Estonia made different choices and got different results. The trap isn't inevitable. It's the product of specific institutional incentives and specific political decisions. And it can be undone, but only if there's a political coalition willing to take on the institutions that benefit from the status quo.
The fintech sandbox story is instructive here. The sandbox was an attempt to fix the problem without changing the underlying institutions. It was a workaround. And workarounds don't work when the problem is structural. You can't fix a regulatory culture by adding a regulatory exception. You have to change the culture.
Where does this leave Israel — and what can other small societies learn from this cautionary tale? The lesson isn't "regulation is bad." It's that regulation should be strategic. Every unique standard should justify itself against the cost it imposes. Every rule should be enforced, or it shouldn't exist. And small countries in particular should be allergic to uniqueness in economic regulation, because they can least afford the friction it creates.
As more countries look at digital sovereignty and tech regulation, Israel's experience with the physical-world version of this — the plug, the driving test, the banking rules — offers a clear warning. The cost of uniqueness compounds over time. And the institutions you create to manage that uniqueness will fight to preserve it, long after the original rationale has disappeared.
Now: Hilbert's daily fun fact.
Hilbert: In the seventeen twenties, salt traders crossing the Sahel could estimate the purity of a salt slab by holding it up to the sun — higher purity slabs refracted light with a faint blue-violet cast, an optical property that made certain slabs worth three times as much as cloudier ones at markets in Timbuktu.
...right.
I'll never look at salt the same way.
The question that stays with me is whether Israel can break out of this cycle. The pressure is building — cost of living is a top political issue, and the regulatory burden is part of that story. But the institutions that benefit from uniqueness are dug in. Change will probably come from outside — trade agreements that require harmonization, or competition from countries that make themselves easier to do business with. The market eventually punishes friction. The question is how long it takes.
This has been My Weird Prompts. Thanks to our producer Hilbert Flumingtop. If you enjoyed this episode, tell someone about it — especially someone who's ever tried to plug something in in a foreign country and wondered why it had to be so complicated. Find us at my weird prompts dot com.
Until next time.
