One hundred thirty-two years ago, Rudyard Kipling’s poem “Tommy” praised the heroism of red-coated British infantry who fought in the 1854 Crimean War. He called them “the thin red line of ’eroes.” (Many were Cockneys, who drop their h’s).
Israel’s thin red line today is its hi-tech engineers and scientists, the human capital that propels Israel’s knowledge-driven industries and hence its entire economy.
How crucial is hi-tech for Israel?
The year 2021 was a record one for exports, totaling $143 billion. The engine of export growth was hi-tech. According to a recent report by the Israel Innovation Authority, “for the first time in Israel’s history, hi-tech exports accounted for more than 50% of Israel’s total exports in 2021, reaching 54%.” The Economy and Industry Ministry predicts a 25% rise in exports in 2022, to $165 billion.
More than one Israeli in every 10 now works in hi-tech – 362,000 people in all, eight percent higher than in 2020, when 27,000 new hi-tech workers were added.
This is reportedly the highest percentage of the total labor force in hi-tech in the world. Compare it with 9.2% in Ireland, 5.7% in Sweden, 5.5% in the UK, 5.3% in Germany and 4.3% in the Netherlands.
And the bad news?
Israel’s supply of hi-tech skilled workers – engineers and scientists – is falling far short of the burgeoning demand. It is time for urgent action to accelerate our production of quality human capital.
A pre-pandemic 2019 report by Startup Nation Central found there were 18,000 unfilled hi-tech positions unfilled, up eight percent over 2018. Forty percent of the unfilled positions were in software, cyber and algorithms. And the shortage has only grown since then.
The salary gap between hi-tech and non-hi-tech is immense. According to Eytan Halon, writing in The Jerusalem Post and citing a consulting report, the average 2018 hi-tech salary was NIS 22,479 per month, while the average salary in the remainder of the economy was only NIS 9,345, 60% lower.
The government has set a future target for hi-tech employment of 15% of the workforce.
Question is, how to achieve it? And will that 15% be adequate?
Recently, a national commission was formed, chaired by former Intel global VP David (Dadi) Perlmutter, to explore ways to expand Israel’s hi-tech skill base. The commission has just tabled its interim report, submitted to Orit Farkash-Hacohen, minister of Innovation, Science and Technology.
The Perlmutter task force begins with the time-worn principle: management begins with measurement. Israel needs clear quantitative measures of hi-tech employment and skills, like those embraced by the US and other countries. Hi-tech changes rapidly, and the way skills and specialties are measured must be adapted, too. For example, the commission notes it is vital to include in the measure all the hi-tech workers currently employed in non-hi-tech sectors.
Using an adjusted measure, the task force finds that in 2021, 14.2% of all workers were in hi-tech, or 447,000 workers. Assuming Israel’s economy attains high growth, that number will have to rise by 2035 to 770,000, or 20% of the total workforce.
At present, Israel’s universities are not able to generate the required human capital. To achieve the goal – 323,000 more hi-tech workers – far more haredim and Arabs will need to be integrated into high-skill hi-tech professions.
I asked Perlmutter what is the single most important reform that would mitigate the hi-tech shortage.
"If I have one thing to choose, it is the educational system that has to be much more in tune with a new world that operates on hi-technology and changes very fast. It must focus on digital literacy, ability to express in English and Hebrew, the power skills of learning how to learn, teamwork, ability to solve tough and open problems, and learning how to fail."
David Perlmutter
“If I have one thing to choose,” he noted, “it is the educational system that has to be much more in tune with a new world that operates on hi-technology and changes very fast. It must focus on digital literacy, ability to express in English and Hebrew, the power skills of learning how to learn, teamwork, ability to solve tough and open problems, and learning how to fail. In addition, much larger numbers of students, mainly the under-represented groups in hi-tech (women, periphery, Arabs and Orthodox), must graduate in what we call ‘hi-tech matriculation’ – math, physics and/or computer science, and spoken English.”
Israel can ill afford to rest on its hi-tech laurels.
Many nations are pursuing innovation as a path to wealth and growth. According to the 2021 Global Innovation Index, Israel fell from 10th in 2019 to 15th in 2021. The cause was not a lack of investment in innovation – Israel still leads in R&D spending as a percent of GDP – but the outputs of that investment. A shortage of human capital can seriously impact Israeli innovation in the future.
The Perlmutter task force draws acute attention to the enormous inequality in hi-tech employment. Only 1% of the hi-tech workforce comprises Arab women; 3% Arab men; 6% haredi women, and 5% haredi men. And the trend is downward. In 2021 there was a 6% drop in the number of haredi hi-tech workers, and according to The Jerusalem Post, only 200 new Arab workers entered the industry.
Nor does hi-tech help the periphery much – one-third of Israel’s hi-tech companies are based in Tel Aviv, employing a quarter of all the hi-tech workers.
Money continues to flood into hi-tech firms. Publicly traded Israeli start-ups raised $27 billion in funds in 2021, more than double that in 2020. And in 2021, hi-tech firms raised $100 million or more each, 88 times. But even here, there are storm clouds. Maya Margit reports in the Jerusalem Post that investment in Israeli hi-tech start-ups fell sharply in the first half of 2022, with only 404 investment rounds compared with 551 for the same period last year.
But clearly, what constrains hi-tech in the future is not venture funding or capital, nor creative ideas, but rather the skilled innovative people who will fuel hi-tech growth.
A brilliant Israeli, Dr. Eliyahu Goldratt, conceived the Theory of Constraints (TOC), and introduced it to a huge audience in his bestselling 1984 novel, The Goal. The basic idea is simple: find the key factor that keeps you from reaching your goal and solve it.
For Start-up Nation, the key constraint is obvious: skilled educated hi-tech engineers and scientists. Money is still quite plentiful. Entrepreneurship abounds. Let us recall that Israel’s hi-tech boom was fueled by the immigration from 1990-2000 of a million highly educated Russians. That bit of good fortune will not repeat itself. It will be up to Israel to generate its own homegrown human capital, in abundance. If we fail, so will the economy.
At present, the thin red line of hi-tech workers is in high demand. It takes time to expand university resources, to generate the needed people with vital skills.
If we fail to act now, the future cost will be very high indeed. Israel’s hi-tech growth engine will simply stall. That must not be an option. ■
The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion, and blogs at www.timnovate.wordpress.com