The Cellcom media conference that took place Tuesday at the Smolarcz Auditorium at Tel Aviv University was an experience to engender optimism. Hundreds of high-tech companies were represented; there was a strong sense of buzzing innovation and openness to the world. Ralph Simon, considered one of the prophets of the mobile phone, kept saying how Israel's high-tech industry reflected Jewish entrepreneurship, brains and daring, and how Israel could be a leader in mobile phone technology. The praise of Israel's high-tech industry, which has been the engine of the country's economic growth since the 1990s, has been sung many times - and for good reason.
Nevertheless, many commentators have pointed out a worrying tendency in this sector. Companies that have grown over the years into large, stable presences like Checkpoint, Amdocs and Comverse, are relatively rare. The typical Israeli high-tech entrepreneur rarely dreams about growing a company to this stage, and much of the industry is geared towards early exits.
This is often associated with a flaw in Israel's mentality. Accepted "wisdom" is that Israelis want the quick, big buck rather than consistent growth. I disagree: the search for the quick exit is not primarily a result of greed and lack of willingness to hang in there for the long run. My own experience with Israeli high-tech entrepreneurs shows the opposite. The best of them wish nothing more than to leave a mark and develop products and companies that are there to stay.
What then contributes to the mentality of the quick exit? I think that it is first and foremost the general sense that everything here is built on quicksand. Israel's political class is notoriously incapable of long-term planning, as the following examples show:
The technology for water desalinization has been economically viable for at least 15 years. Israel could by now export water rather than suffering from a dangerous shortage, if it had invested in desalinization plants in time. But Israel's governments did too little and too late; as a result Israel's citizenry is now threatened with drought taxes.
The second example has ominous consequences for the high-tech industry and for the country as a whole. Israel's higher education system has grown enormously in the last years - but the state's higher education budget has actually decreased during this time. All experts have been warning that Israel's current standing in the academic world is a function of investments until the 1970s. But the recent governments have kept slashing investment in Israel's one, most important asset: knowledge and brains. As a result, Israel keeps losing some of its best researchers to the top universities in the U.S., and the high-tech industry may soon be short of highly qualified academics essential for cutting-edge technological development.
But more than anything, Israel has been devoid of a clear foreign policy. This creates a persistent sense of insecurity about the future. Benjamin Netanyahu has claimed for years that Israel's economic growth is no longer affected by the general political situation; that Israel can continue on its current path for a long time without paying an economic price. This is a highly questionable assumption. Foreign investors may indeed think that the political situation does not constitute a risk factor when it comes to R&D on a small scale: knowledge generated by small companies can be moved very quickly from one country to the next.
The same doesn't hold true for production facilities and large companies; they require huge investment, and they cannot be moved quickly in case of emergency. The option of a third intifada or the resumption of hostilities in some other form looms large because of the political stalemate. This situation is certainly not conducive to a state of mind that leads to development of companies for the long haul.
Israel's lack of a political horizon and long-term planning are the main reasons why our high-tech industry is oriented towards short-term gains. If Israel's citizens are sometimes accused of just living for the day, we cannot blame them anymore than we should accuse the high-tech sector of short sightedness. High-tech entrepreneurs and investors cannot plan further ahead than the infrastructure of the state allows.
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