Zehev Tadmor (Hagai Frid)
Zehev Tadmor Photo by Hagai Frid
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Prof. Zehev Tadmor is worried. The future of Israel's high-tech industry is hazy and the forces driving it are beginning to falter. "One of the three challenges the Israeli economy faces is whether it can continue to support the high-tech industry," says the chemistry professor, who served as president of the Technion - Israel Institute of Technology from 1990 to 1998.

Israel's high-tech industry today is the product of a protracted, broad social process with multiple facets, Tadmor explains, and proceeds to list them: "The security apparatus in which the country invested for 50 years; the universities and the huge influx of immigrants from the former Soviet Union, which supplied quality manpower; the Oslo accords, which opened the world to us; and venture capital funds that the government had the wisdom to create. All these factors came together wonderfully in the same decade."

In short, Israel's high-tech industry is the culmination of a historic process, where two revolutions - the technological revolution and the scientific revolution - merged, he says. "The two revolutions once were on separate paths and involved different people. Not until the turn of the 20th century did they merge and start nurturing each other. General Electric and the development of synthetic rubber were at the forefront of this process. As a result the United States government began to grasp the power of science and invest massively in it, as it does today."

Israel has become a technology leader in many ways. But that isn't carved into stone. If we don't stay at the forefront of the next technological waves, in fields such as nanotechnology and molecular biology, we won't remain a technology leader for one, warns the professor: and these are sciences that require innovation."

TheMarker: Reliance on electronics alone will no longer enable us to have a significant high-tech industry?

"This alone won't be enough, but without it as a foundation we can't progress. The high-tech revolution brought many innovations, but that pace can't continue. The new revolution in information and communication technologies will come from other fields where we'll need to be in order to stay innovative.

"You need to remember that China and India pose big threats. Production has been one of our strengths, but a look at the number of scientists and engineers in the Asian countries makes it clear that production will eventually move there."

But even if high-tech continues to flourish and contribute to the economy at its current pace, we face another impediment, Prof. Tadmor says.

"Our economy is bipolar," says Tadmor. "On one side is high-tech, contributing 14% of the GDP, and on the other side is the rest of the economy. Don't forget that 90% of the workforce works in the less efficient, classic economy. If we don't lift the rest of the economy, we won't succeed."

What is the third impediment?

"Low workforce participation, particularly by ultra-Orthodox men we need to integrate into the labor market. The key issue is that 27% of all children are from this sector and aren't being prepared for the modern world. Israel's GDP will be threatened if these children can't enter the workforce in a few years. There is talk about teaching the core curriculum at Haredi schools, but the results won't come for many years. Therefore two things must happen - integrating Haredi men into the workforce and teaching core subjects."

Shouldn't have sold Makhteshim

One of the things disturbing Prof. Tadmor most is the absence of long-term goals - for high-tech specifically, and for the Israeli economy in general. In an interview with TheMarker two weeks ago, several days after the announcement that Nochi Dankner's Koor Industries was selling Makhteshim Agan Industries to China National Chemical Corporation, Tadmor said: "The sale of Makhteshim Agan is a sad day for industry. A factory with a massive amount of knowledge is being sold to the Chinese. Decades of research were for nothing. The entire transaction happened due to the destruction of the company's research and development in recent years. Company management cut R&D to bring in short-term profits. If research hadn't been cut to save money, the sale to the Chinese could have been avoided.

"Industry is being wiped out instead of being built up for the long-term. Every chemical engineer in Israel feels greatly disappointed. I felt they had taken part of me and sold it. Makhteshim was built on knowledge generated by dozens of scientists trained at the Technion and other institutes over the years."

Now Tadmor is chairman of the Samuel Neaman Institute for Advanced Studies in Science and Technology, a policy research center that addresses Israel's economic, social, scientific and technological development. Prof. Tadmor and the institute helped prepare a strategic social and economic plan, whose steering committee was led by Eli Hurvitz, then chairman of Teva Pharmaceutical Industries; David Brodet, former Finance Ministry director general; and strategy consultant Sami Friedrich. The plan, entitled "Israel 2028: Vision & Strategy for Economy and Society in a Global World," was presented to the government in 2008. It outlines ways to reduce Israel's social gaps and create rapid, steady economic growth so that the country has one of the world's top 15 GDP-per-capita ratios by 2028.

The plan focuses on strengthening and improving the civil service, creating advisory councils in the prime minister's office, expanding workforce participation and reducing the number of foreign workers, promoting globalization and encouraging the establishment of international companies in Israel, and keeping the country's technological industries on a growth path. Although most government ministers were familiar with the program, it has not been implemented.

What keeps us from looking forward 10 to 20 years?

"There probably aren't many people in the government thinking and acting long-term, but we assume they're ready to listen. Former Prime Minister Ehud Olmert was ready to listen; this probably suited his agenda. Even once we've become more competitive we'll still need to address education and infrastructure. These are things only the public sector can do."

Many people believe this sector is poorly managed and ineffective.

"The will to make changes and plan for the long term needs to come from the prime minister, who can get the system going. If the prime minister sets the path, others will follow. The plan could gain serious momentum, but apparently the current coalition isn't up to the task. Maybe another plan for another coalition is needed. While several of our recommendations are starting to get through, significant change requires action by the prime minister, and the key is the public. Perhaps it needs a different political structure."