The Future of Israeli High-tech: Jewish Brains Aren't Enough

Netanyahu's claim that Israel's economic growth is unaffected by the general political situation is highly questionable.

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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