Is Israel losing its hi-tech edge?

An interview with Sol Gradman, chairman of the Ra'anana Conference for Hi-tech Policy.

Sol Gradman 88 224 (photo credit: Courtesy)
Sol Gradman 88 224
(photo credit: Courtesy)
Israel is considered by the whole world as a center of hi-tech research and development. And so it is. Since the mid-1980s, when the hi-tech industry was effectively "civilianized," local companies, big and small, developed countless new technologies. Some Israeli companies, such as Amdoxs, Comverse and Checkpoint, have become large global companies; Checkpoint is the acknowledged leader in protecting networks from unwanted intrusions via the Internet. The local hi-tech industry is not only greatly respected in the world, it is also one of the pillars of the economy it has effectively revolutionized. Last year, the hi-tech industry exported some $15 billion worth of products and knowhow. It is the main reason that there was a surplus trade balance of nearly $1b. in 2006. The hi-tech industry is still an engine of growth, but some people think things may be turning sour and Israel may be in the process of losing its edge. Two years ago an organization was formed to find the means and ways to protect the local hi-tech industry. It is called the Ra'anana Conference for Hi-tech Policy, and some of its promoters and leaders are very worried. Sol Gradman, the chairman of the conference, is one of them. "I am very worried about the long-term viability of the hi-tech industry in Israel," he told The Jerusalem Post. "Global developments are adversely affecting our competitiveness in hi-tech and neither the government nor the industry itself is reacting in the way it should. "The economic global center of gravity is noticeably shifting eastward. In the past 10 years or so, industrial production has shifted from Western countries to China and to a lesser extent India, and now it is the turn of hi-tech industries and research and development centers. They also are making the eastward trek. "And this is understandable. China and India have both the necessary manpower and the will to become hi-tech centers, and what is more important, they are inexpensive. "During 2007, 800,000 new engineers finished university in India and China. And their employment costs in 2007 were twice that in the USA and about 50 percent higher than in Israel, which incidentally graduates only 8,000 engineers annually." What do you expect? India and China have a combined population of 2.5 billion; we have 7 million, the US 300 million, the UK 60 million, Germany 80 million. These are statistical facts that cannot be altered. I agree with that statement. China and India have big numbers and ultimately big numbers produce quality, because out of those 800,000 engineers produced annually, a few thousand will, in all probability, be high-quality developers - and we have to find ways and means to face this situation. I am sorry to say that we are not, as a nation or an industry, taking stock of the situation and not taking the steps necessary to retain our leading global role in the hi-tech industry. The first thing we should do is to overhaul our educational system. Much has been said about our low educational level, but the steps that are been taken to remedy this problem are insufficient because, to the best of my knowledge, they are not addressing the specific problem of technical and scientific education in the primary and secondary levels. If there are not enough secondary school graduates to go on to technical or scientific institutes of higher learning, then we are in big trouble because we will not have the manpower essential to a modern world-class hi-tech center. Manpower is important, but so is money. There is money in Israel - a lot of money - but very little is invested in hi-tech projects. Investments in hi-tech projects in Israel total an annual $2 billion, but less than 10% of these funds come from local private or institutional investors. The government supplies some $300 million through the office of the Chief Scientist, while the bulk of the money comes from overseas investors - both direct investors or through the medium of VC [venture capital] funds. In 2007, Israelis invested $21 billion overseas, which means that there is no lack of investment funds. The government should take steps to encourage local institutional investors and especially pension funds to invest in the local hi-tech industry . How? It is no secret that institutional investors are wary of hi-tech investments because, in their opinion, they are much too risky. These fears should be overcome by preferential tax arrangements and regulation changes. Financial pension institutions are obliged to submit monthly reports to the Ministry of Finance. Hi-tech investments are long-term affairs. They show no profit in the first years, and this may affect their actuarial balance. I would suggest to develop a different system that would encourage pension fund managers to be more responsive to VC funds, for example.