The Intel inside us
Israel is skilled at innovation, but the other qualities that make for a thriving economy with sustainable growth continue to elude us.
Here is a proposal for a public works project: Somewhere along the coast, in view of airline passengers peering out their windows on the descent to Ben-Gurion International Airport, we construct a giant “Intel Inside” logo. It would be just like the one that is pasted on laptops or appears at the bottom of ads for products that use the company’s microprocessors − the word Intel encircled by a swoosh − except it would be hundreds of times larger and made of concrete.
At this time of rising unemployment, it would create a lot of jobs for the unskilled, who bear the brunt of joblessness in good times and bad. After that, it would be a tourist draw for the kind of people who are attracted to things like the Hollywood sign in Los Angeles and the Carhenge in Nebraska more than to fusty old churches and archaeological sites. Since Intel has traditionally subsidized companies that add the logo to their marketing campaigns, there is a good chance it would throw in some money for the construction and operating costs.
An added attraction, of course, is that Intel Inside very much sums up the state of the Israeli high-tech sector and the economy generally.
It is no exaggeration that despite our reputation as the start-up nation, Silicon Wadi, the other Silicon Valley and the rest, the tech industry is very much dependent on Intel and other foreign multinationals to provide jobs and boost the economy. The start-ups attract most of the attention with their clever apps, and the millions of dollars they bestow on investors, and their few employees when they are sold. But when it comes to real jobs and real income, it’s the big foreign companies that are really delivering the goods.
We saw a small example of that in the second quarter. The Central Bureau of Statistics reported a surprise increase in gross domestic product − a 3.2% annualized increase, accelerating from the first quarter at a time when the consensus is that the economy should be slowing. GDP grew unexpectedly fast because − also contrary to expectations − exports rose at a 10.2% annual rate.
How did that happen? Europe is in crisis, the United States is struggling and even China is seeing slower economic growth.
The answer is Intel. The semiconductor maker’s Kiryat Gat fabrication plant inaugurated a new production line in the first quarter and began shipping chips in huge quantities in the second, which of course all went overseas and were booked as exports. Before that, when Intel was tooling up, the impact was so large as to boost overall capital spending for the economy.
With some 8,000 people on its payroll, it is one of the largest private sector employers in Israel, and with exports averaging $2.5 billion annually in the last two years, it is by far the biggest single exporter of high technology. The American company does even more than the Kiryat Gat plant does, providing employment for scientists and engineers at its R&D centers, and acting as a venture capitalist investing in Israeli start-ups. In recent years, Intel Israel has gone the whole route from designing chips to manufacturing them. When it comes to Israel, Intel really is inside.
Brief, ephemeral jobs
Intel’s contributions to our economy also say a lot about what the domestic tech industry does not.
Where Intel employs multitudes and provides a wide range of jobs from engineer to logistics manager to company cafeteria cook, our vaunted start-ups provide brief and ephemeral employment for a tiny number of people with a limited range of education in engineering and computer science. Where our technology entrepreneurs build businesses to be sold at a quick profit, Intel builds businesses to last. Where we are told that Israel can’t manufacture competitively, Intel (albeit with generous government aid) has been doing it for decades.
Too much of Israel’s high-tech miracle is in fact the work of foreigners. Of our seven biggest technology employers, three of them are the local branches of American companies (Intel, Hewlett Packard and IBM), and they employ more people than the four biggest domestic technology employers (Amdocs, ECI Telecom, the RAD group and Orbotech).
Israel may have the biggest proportion of R&D spending of any economy relative to GDP, but companies that are at least 50% foreign-owned account for close to two-thirds of that. Microsoft employs about 600 people in Israel, Siemens 800, SAP 800 and IBM some 2,000 just for research. The capital for the venture investing that is the lifeblood of Israeli tech is almost all from abroad, and even the skills of venture capital investing are gradually being assumed by foreigners, too, as the local VC industry contracts.
The role of multinationals
This is not an argument for xenophobia, but only to point out the extent of Israeli high-tech’s failure. This country’s one skill is innovation; the others that make for a thriving economy of sustainable economic growth − skills in management, marketing and manufacturing, to name a few − continue to elude us, even in the industry that is supposed to be our bread and butter. No Israeli technology company can match the size, scale and extent of the operations of a small arm of a single U.S. multinational.
It’s not that we should be trying to build our own Intels, at least not companies as massive as Intel and its peers. Israel just doesn’t have the raw people power to match Intel globally, much less aspire to outperform it. The U.S. company employs more than 100,000 people and had a turnover of $54 billion last year.
But we should be able to develop a clutch of our own mini-Intels by building companies that have revenues in the billions and payrolls in the thousands.