Netanyahu Is Promising More Than He Can Deliver as Israel’s High-tech Pitchman

At Davos, he invited multinational companies to set up R&D operations in Israel, but where will all the engineers come from?

Prime Minister Benjamin Netanyahu made a strong pitch to the world’s high-tech companies at last week’s Davos conference to set up shop in Israel. “We can be your science and technology incubator,” he told the planet’s business and political elite, setting out an articulate and convincing case for Israel’s technology prowess.

Yes, he went a little over the top in calling Israel “the epicenter of world innovation,” a title the United States can still fairly claim. He lost touch with reality altogether when he suggested that investing in Israeli high-tech would foster peace between Israel and its neighbors. But it’s fair to cut him a little slack: After all, he was playing the role of pitchman for Startup Nation and what better a way to clear a businessman’s conscience these days when the Israel boycott is on the agenda than to frame an investment in Israel as politically correct. Scarlett Johansson says she’s been using SodaStream for years and giving it as a gift to (no doubt somewhat disappointed) friends. Do we have to believe every little detail they assert to be convinced? Not really. The gist of the message is what’s important.

The difference, however, is that SodaStream does in fact make fizzy drinks in whatever flavor you choose in the convenience of your home while it is not at all clear that Israel can deliver on Netanyahu’s promise of becoming the world’s R&D center.

Israel is already home to some 250 multinational research and development centers that employ some 25,000 people. Nearly all the luminaries of the technology world have a presence here, ranging from old standbys like Intel and IBM to hot properties Google, Apple and Facebook. Most are American companies, but even the supposedly Israel-shy Europeans are here in big numbers, too, like Siemens. More recently Asian multinationals have staked out a place in Israel. The last week has seen a flurry of announcements for even more R&D centers. Microsoft, Amazon, Cisco and IBM are all launching cyber-security R&D ventures in Israel; China’s Haier and France Technicolor are also in the game.

But it is a relevant question how many more of these companies Israel wants to host. On the one hand, they create well-paying rewarding jobs and since they don’t make anything they are relatively speaking environmentally friendly. They bring higher standards of management and organization to the Israeli business world and are a source of startups. Politically, they could prove to be a strong counterweight to the global boycott, divestment and sanctions movement against Israel – a huge corporate presence that has no interest in isolating Israeli economically or politically. If having an R&D center isn’t quite the same thing as having sunk hundreds of millions or billions of dollars into an oil field or an automobile plant, these R&D centers are valuable assets to their companies.

Most of the business sector research and development spending in Israel isn’t done by its startup companies but by multinational R&D centers. Of course, that is money flowing into Israel to pay all those engineers, but the big benefits from all this intellectual property go back to these companies’ home countries where they create even more jobs for people who do the work of taking an innovative new technology, and manufacturing and marketing it. Each time a new multinational R&D center opens it is two jobs added, but three or more others added somewhere else.

But the biggest question of all is whether Israel can supply the human resources. The Russian engineers and technologists that filled out the ranks of Startup Nation in the 1990s are slowly heading into retirement, while the number of science and technology students isn’t growing: In the 2009/10 academic year, the latest for which figures are available, they numbered just 12,700. That’s up from 10,300 a decade earlier, but the rate of growth is much smaller than for other fields. In fact, the proportion of students in science and technology at Israel’s institutions of higher education is falling. High schools, except in the Arab sector, have mostly cut back science teaching and the universities have been trimming back senior faculty. At the Technion- Israel Institute of Technology, the prime training ground for the country’s engineers, the number of senior faculty is 26% less than it was 40 years ago.

There are solutions, but none of them are easy or fast. Upgrading the schools, increasing funding to the universities and encouraging more students to choose science and engineering are the most obvious ones. But the schools have shown remarkably strong resistance to reform and even if tomorrow they instituted a turnaround it would be another generation before its impact is felt in the high-tech industry.

Bringing Israel’s two big minorities and one big majority into Startup Nation would also help fill out the ranks. According to the Tsofen High Technology Centers, Israeli Arabs account for just 1.5% of all people employed in technology – just 1,200 people – even though they account for a fifth of the population. Women are an even bigger pool of untapped human talent, but for whatever the reason, they don’t study science and technology. The latest figures from the Central Bureau of Statistics for the 2012/13 academic year found that more than 85% of all applicants to relevant programs like computer and electronic engineering programs are male. Haredim don’t study anything more than the fundamentals in math, science or English, the lingua franca of the high-tech world. Altogether, these three groups account for the great majority of Israelis yet are tiny minorities in the tech world.

The catch is whether these groups can adopt the ethos of Startup Nation, which as Netanyahu pointed out in his Davos address doesn't just involve studying math and science in school. Having good math and science training might be more useful if Israel’s technology sector were broader based to encompass manufacturing and marketing, where skills and abilities honed in high school and university are the key asset, rather than the unrestrained creativity that goes into innovation. But Israel’s talent for innovating requires a certain kind of thinking that you don’t learn from a science textbook.

As Netanyahu explained at Davos, Israel’s innovative capacity is the product of a fine chemistry that draws from a traditional Jewish approach to intellectual problems, a survival instinct evolved over centuries of Jewish history and decades of Israel history, and the values and training instilled by the army. All of Startup Nation’s outsiders lack one or more of these ingredients.

Netanyahu’s Davos address contains a distressing echo of his many declarations about Iran’s nuclear threat. On Iran, he was threatening more than he could deliver; on innovation, he is promising more he can deliver, too.

Tomer Appelbaum