Hi-tech success is Israel's success - It belongs to all its citizens

To hi-tech people: don't threaten the state with what also belongs to the state. The public also has a fundamental share in the great success built here - the Israeli hi-tech.

 Dr. Esther Luzzato (photo credit: Michal Luzzato )
Dr. Esther Luzzato
(photo credit: Michal Luzzato )

The success of the Israeli hi-tech stems from many broad foundations built in the country over decades; it belongs to more than just a few dozen or hundreds, however talented they might be. The entire country can and should be proud of this success. Therefore, the threats of some of the entrepreneurs and managers in hi-tech companies to withdraw their funds from Israel and transfer them to other places following the legal reform have no place. To them, I suggest being modest and remembering that the success belongs to all of us.

Four pillars of technological infrastructure

For over three decades, a hi-tech industry has been built in Israel while investing enormous state resources. This industry rests on four important pillars unique to the State of Israel, each of which individually, and severally, have a significant impact due to the country’s small size.

The first of these is the defense environment. It begins with the strict selection and recruitment of soldiers for the technological units, which are at the state's disposal for between three and five years on average, after which they "land" directly on the technology front. The state invests enormous resources in cultivating these units for security needs. It should be emphasized that the state actually invests, creates, and supplies a "permanent output" of comprehensively trained human capital from the technological units to the civilian hi-tech industry. Such a critical infrastructure does not exist in any other country in the world, certainly not on such a scale compared to the market size.

This continues with investment in defense R&D. These are huge investments by the state in developing technology-oriented weapons, which gave Israel an operational advantage but also dramatically affected the civilian market. The Military Industry (IMI), Israel Air Industry, Rafael, Elbit, and the Nuclear Development Center are all government creations, either directly or in partnership with the private sector. These industries gave birth to dozens of subsidiaries, and some of them were privatized and became a significant industrial and economic force, employing hundreds of thousands of workers with an enormous contribution to research and development. True, it was primarily due to security and global constraints, such as arms embargoes imposed on Israel at different times following economic pressure from Arab countries, but a great deal of the developments and human capital flowed into the civilian industry. As mentioned, these are huge sums that the state has invested in the hi-tech sector, which has directly benefited from the fruits of this investment for decades.

The second important pillar is the cooperation between academia and industry. According to the International Research Institute, The Swiss IMD, Israel ranks first in this cooperation as well as in investment in R&D as a percentage of GDP, both at the global level and in the OECD, and this does not include the investment in research and development in the defense and military systems. The institute lists ten parameters that build an infrastructure for a country's technological innovation. Israel stands in all the same parameters among the five leading countries out of 66.

Dr. Esther Luzzatto (credit: Michal Luzzato )Dr. Esther Luzzatto (credit: Michal Luzzato )

The third pillar is the existence of hundreds of international research and development centers responsible for the direct and indirect employment of approximately one million workers. About 450 multinational technology companies in all fields have recognized Israel's outstanding advantages and are here to stay.

The fourth pillar is private money, the vast majority of which comes from abroad, such as venture capital funds or other financial entities. These entities weigh all the advantages of the Israeli market over decades, invest tens of billions of dollars yearly, and reap more profits here than anywhere else.

State subsidy and support

To all these must be added the participation of the state in the risk of the entrepreneurs. One of the most important government branches in establishing and cultivating the hi-tech industry was the chief scientist (now the Innovation Authority), which for many years shared in the entrepreneurs' risk through subsidies and support. The primary tool was the various R&D investment funds, which supported the development of new technologies. This is a risky investment that the private sector avoided. To this must be added the incubator program, which, with the large waves of immigrants from the CIS countries, allowed hundreds of immigrant scientists to enter the hi-tech field.

Also, tax benefits, grants, and incentives that the state gave to international technological corporations, such as Intel, brought the hi-tech giants here, infused innovation, and resulted in employment for thousands of people.

The Singapore example

The claim of companies like Papaya Global that there is a concern for the fate of democracy in Israel following the legal reform is strange, considering that it is invested in countries that are not exactly models of democratic conduct, such as Singapore, China, and Hong Kong.

Let's dedicate a few words to Singapore because it is a great example. Singapore is considered a paradise for investors even though it does not have an ounce of liberal democracy. The government fully controls the country’s press, radio, and television, and the ruling party persecutes the opposition. Despite this, the Singaporean economy is seen as a free, innovative, dynamic, and business-friendly economy, and Singapore is one of the few countries with a triple-A credit rating. It attracts a large amount of foreign investment due to low tax rates, its strategic, skilled workforce, and a policy of zero tolerance against corruption. According to the World Economic Forum, the Singaporean economy is the most competitive in the world, with the second-highest GDP per capita. Over 7,000 multinational corporations operating in Singapore went there due to these considerations, elegantly ignoring its democratic status. 

So if Singapore is thriving, surely the wonderfully democratic Israel will continue to be successful.

As an aside, the Singaporean wealth fund GIC has been investing in Israel for many years in start-ups and Israeli venture capital funds. It doesn't seem to bother anyone in the hi-tech milieu.

Excessive concern

The reasoning that the legal reform endangers the funds of companies and investors is baseless because the proposed reform does not touch on issues such as property, taxation, corporate governance, or employment, which are primary concerns for foreign investors, and it has no reason to harm the current business climate, which attracts leading multinational corporations here. Israel does not nationalize companies or even force them to act here alongside a local partner, as in India or China. At most, it requires mutual procurement arrangements in accordance with international conventions.

The fear of senior hi-tech people that foreign investors will avoid investing in Israel following the legal reform seems exaggerated for two main reasons: first, the legal system today is overloaded, and legal proceedings take years. None of this has affected foreign investors to date. Even the uncertainty following the well-known "Apropim" ruling, which created great uncertainty regarding the meaning of commercial agreements, an uncertainty significantly greater compared to Western countries, did not change the taste of investors, and if anything, giving business certainty to contracts can only give investors greater comfort.

Second, in Israel there is already instability due to security problems. Think of the entire chain of security operations of the last few years - from Cast Lead through Pillar of Defense to Operation Protective Edge and Breaking Dawn. All these did not cause the investors to stop or reduce their investments in Israel. The opposite is true; the investments in Israel in these years only kept growing. The year 2019, in which three military operations took place, was a record year regarding exits in the Israeli hi-tech industry, with 138 exits totaling about 21.7 billion dollars.

Furthermore, the circle of foreign investors in Israel is expanding following the Abraham Accords and even beyond the countries of the agreement. The Qatari wealth fund entered Israel for the first time and began investing in Israeli technology companies.

We should emphasize that Israel is a hi-tech nation with special conditions, as detailed, which is why quite a few large companies in the world look for innovation here and see Israel as a destination to invest in and cooperate with.

No to threats, yes to discussions

The threats coming from a part of the hi-tech community reflect concern and disapproval of part of the public, usually out of disapproval of the government and its leader. In democratic Israel, the legislative branch – which appoints the executive branch - is elected in democratic elections. All citizens, indisputably, are required to respect the election results. I start from the assumption that the majority of the people - which is also the silent majority - support this and respect the election results. This is also true among the hi-tech community, which, in large numbers, is a reflection of the people.

In my eyes, the hi-tech people - the entrepreneurs, the inventors, the start-ups, the company managers - are precious people. Pioneers, dreamers, and achievers blessed with skills, who lead the camp and promote the Israeli economy at personal risk. I write these things with sorrow and pain because I am aware of their significant contribution and share the values that motivate them - entrepreneurship, the desire to influence and make a mark - alongside their ambition for a free market and a business climate that encourages entrepreneurship, but I feel uncomfortable in the face of their fears and reject the threats that few of them utter entirely.

What saddens me even more is that a small part of hi-tech executives is involved in social projects; there is no overwhelming involvement. And just as their influence on technological innovation and the economy is great, so can their impact on society.

The claims that the wealthy of Start-Up Nation do not contribute enough to the community, unlike the generation that preceded them, were not made by me but by Adi Altshuler, an entrepreneur and a prominent social activist. I want to point out that for those who do so, indeed, their contribution is great, but their number is small.

We should all be troubled by the social and economic disparities on the center-periphery axis and by the fact that the success of hi-tech and its fruits do not permeate broad layers of the public or that broad layers are excluded from the hi-tech environment, such as Arabs, ultra-Orthodox, women, people with disabilities and residents of the periphery.

I hereby call on the hi-tech people to express their legitimate protest through the appropriate channels. It is fine to demonstrate, and it is good that they show social involvement. They should go to the Knesset's Constitution, Law and Justice Committee, where the discussions on the reform are underway, and express their position - as done by some of the most prominent opponents of the reform, such as former justice minister Dan Meridor - and present their concerns. At the same time, I call on the heads of the coalition to hold a serious, in-depth discussion, including in the Constitution Committee.

One recommendation I have for the hi-tech people: don't threaten the state with what also belongs to the state. The public also has a fundamental share in the great success built here - the Israeli hi-tech.

The author is the chairman of the "Israel for the Negev" association and a social activist.