Before Israel was the start-up nation, before it was known for cutting-edge innovation and world-beating technology, it was somewhat of an economic basket case. The government accounted for well over half of all economic output; inflation was problematic; and finding money to fund a venture was nearly impossible.
This began to change in part because of work done by the Office of the Chief Scientist (OCS), a division of what’s now called the Economy Ministry that was founded in 1974 to help spur the private sector. Though every ministry has a chief scientist responsible for advising on scientific issues, the Economy Ministry’s has a different role.
“The mission in the ’70s, ’80s, even the ’90s, was creation,” says Avi Hasson, who has run the OCS for the past four and a half years. “We needed to create an ecosystem that wasn’t here.
There was no venture capital, and the Yozma program did that.
There were few startups, and the incubator played a role in making that [happen].”
The OCS helped private-sector investors get into the game by agreeing to secure or match their investments, putting a large part of the risk on its own shoulders. The idea wasn’t to go and pick the best companies, but to help build an environment where investors could find promising young companies and feel confident they could get a return on their investments.
In the 1990s alone, Israel’s annual venture-capital outlays increased by a factor of almost 60, from $58 million in 1991 to $3.3 billion in 2000, according to George Gilder, author of The Israel Test.
The majority was private money. In fact, while Israel has the developed world’s highest level of R&D relative to the size of its economy, almost none of it comes from the government.
But having established investment funds, research incentives, incubators and joint R&D schemes with just about every advanced country imaginable, the OCS is looking to the future and preparing an overhaul to help Israel keep its innovative edge.
“The world has changed and the mission has changed. And one thing’s that clear is that we don’t have one mission,” Hasson says. “Today, every government worldwide realizes how much innovation drives economic growth, and there’s much more competition for Israeli hi-tech and innovation.”
To figure out how to keep Israel ahead of the curve, the OCS ran a study of 32 countries, surveying over 200 different attributes. The conclusion? Israel’s innovation engine needs an upgrade.
In June, the government approved an overhaul of the OCS, which will transform it into the National Authority for Technology and Innovation, or NATI.
Instead of the chief scientist running what Hasson calls “a very big factory with NIS 2b. and a thousand companies,” the new authority will be structured like a private-sector business. It will have a general-manager in the role of CEO, a chairman of the board (the chief scientist) and a board made up of government representatives and industry experts.
It is meant to have the flexibilty to develop different tools for the economy’s new needs.
“We had 40 types of hammer, but sometimes you need a screwdriver,” said Hasson. “If you are in the innovation business and everything is changing, and the rate of change is accelerating, then the government entity supporting it must also be dynamic.”
For example, the goal of integrating more of the country’s Arab citizens into hi-tech is very different than increasing cooperation with China or helping manufacturers to integrate hi-tech tools.
For Hasson, the latter goal – connecting the various parts of the economy to Israel’s hi-tech and innovation engine – is a major goal.
“Fifty percent of our exports are hi-tech, but less than 9% of the population is employed in the industry,” he notes.
The key to growth, lower poverty levels and a more equal society lies in getting more sectors to be super-productive.
In Hasson’s view, the most important thing government can do (other than provide infrastructure and a good business environment) is to help the private sector shoulder risk, something he says the government is actually better at.
“It’s counterintuitive, but it’s true,” he explains. “Unlike investor or entrepreneurs or corporations, we benefit from the failures. If a company fails and out of that company emerge four new companies with the talent, the lessons learned, the experience and so on, then as a government, we have a positive return. So we can take risk and we should take more risk.”
That, he explains, actually attracts much more private money.
Every shekel the government invests in R&D, Hasson says, ends up having a five- to 10-fold return for the economy.
As it is, his office gets five times as many worthy projects as it can fund.
The government, he says, should invest more.
“I believe there’s no better economic investment that the government can make,” he proclaims, “than R&D.”
Asked what trends he saw around the corner for Israeli innovation, Hasson demurred. He did not want to sound like he was trying to pick winners. That said, there were two trends he saw as being in full swing and playing in Israel’s favor.
“One is the fact that industries are becoming more interdisciplinary,” he says. “It’s good for Israel because we’re small, nimble, out of the box. Every MD [physician] is friends with an engineer.
And the second, which is related, is the fact that ICT [information/communications technology] is connected to everything else. Medical devices and communication, big data for bio, cyber security for your car. When this happens, Israel can play a role, and companies can come here because, suddenly, there’s a need.”