David's Harp

Is Startup Nation Headed for the Doghouse?

High tech may be idolized in Israel, but in America it’s coming under attack. Could the same thing happen here?

As a group, business people have never been admired by the Israeli public the same way that war heroes, pop singers and celebrity chefs are. But the last few years have removed the last vestiges of whatever pedestal tycoons and CEOs once stood on.

First, there was the global financial crisis, which tarnished big business − banks in particular − even if Israel itself was spared the worst of the global downturn. Next came the 2011 social-justice protests, the biggest in Israeli history, which acted as a lightning rod for popular anger against price-gouging semi-monopolies like Tnuva and the mobile operators. Then the tycoons started defaulting one after another as their investments turned sour, forcing them into debt bailouts that often came at the expense of the investing public.

Most recently it’s been Teva Pharmaceuticals' turn to squirm in the spotlight as its performance tanked in the course of its global retrenchment program. Meanwhile Teva and host of other big companies have been put on the defensive over the generous tax breaks they got from the government.

Yet the entrepreneurs and investors of Startup Nation are not only admired − they are idolized, even by many of the same people who have little else good to say about business.

In high tech, people make their money the way textbooks say capitalists are supposed to do it − by creating and building companies through innovation and drive rather than through state handouts, family money or “protektzia” (cronyism).

Occasionally the industry gets bad press, like Babylon’s implosion or Check Point Software and Intel’s appearance on the list of companies not paying taxes on their “trapped” profits.

At the turn of the millennium, high tech had a burst bubble that would put banking to shame, but it left behind far less collateral damage. In any case, the industry has built up too much good will from the media and government for occasional embarrassments to take much of a dent.

Yuck, homeless people

In America, however, tech is losing its luster. The New York Times says the signal event was a nasty post last month by Peter Shih, who listed 10 things he didn’t like about San Francisco − the city's technology tycoons like him are rapidly techno-gentrifying at the cost of ordinary middle-class people − among them the presence of homeless people.

The Economist on the other hand says the turning point was the wedding of Napster founder Sean Parker last spring, a $4.5 million extravaganza set amid the redwoods of Big Sur, with Sting doing the music.

With his post, Shih became cannon fodder in the battle in San Francisco over evictions and unaffordable housing. Parker’s lavish nuptials, which received wide media coverage, showed America that Silicon Valley geeks were no less filthy rich, no less ostentatious and self-important than investment bankers or Russian oligarchs.

Shady 1-percenters?

Rather more concrete criticism has been aimed at the industry over recent months. An article on Salon.com last spring called techies “Silicon Valley’s shady 1 percenters.” Google, Apple and Facebook and the like may retain their coolness, but they have long ceased to be spunky startups: They are powerful companies that have a stranglehold over markets like online search (Google) and smart phone operating systems (Android).

Tech companies don’t pay their fair share of taxes: Apple is a past master of moving its earnings into low-tax jurisdictions.

The industry isn’t above politics, as it has long claimed, but is in fact trying to buy influence in Washington just like old economy business does.

Tech companies create little employment (Twitter employs fewer than 1,000 people in America, compared with 200,000 by General Motors). The result is that a few become disgustingly rich (luxury car registrations in Silicon Valley are twice the national average). And, tech companies have cooperated with the government spies.

Like lots of social trends, what starts in the United States often reaches Israel. Is the high-tech honeymoon about to end here in Israel, too?

Back home, not exactly big business

Objectively − if such a word is relevant when talking about social trends − there’s no reason for Startup Nation to worry. Israel hasn’t created the big, market-dominating companies that are earning the public’s wrath. Indeed, few Israeli tech companies count as big business at all. They tend to be low-cost, low-profile affairs led by geeks. There are no fleets of private corporate jets, or free dry cleaning service for employees. They don’t spend much time lobbying the government because Israeli tech companies operate in a global market and have little interest about what regulators are doing at home.

Israel looks more like the Silicon Valley of a generation ago than the Silicon Valley of today.

The industry’s Achilles heel is that, just like in America, it creates few jobs and doesn’t spread its wealth. Instead of growing, companies disappear in mergers and acquisitions.

High tech’s failure to drive the broader economy may not have aroused much concern, except in policy-making circles, because Israel’s unemployment rate has been running very low and is presently just 5.9%.

Nor does Startup Nation throw the weight of its wealth around much. What counts for conspicuous consumption in Tel Aviv or Herlizya Pituah would elicit a snort in San Francisco and Palo Alto. Anyhow, are people going to protest in front of a startup’s offices demanding it grow into a big business that can employ them? Hardly.

Nevertheless, it would be wrong to discount the power of populism and its ability to create targets out of vapor.

Take Google, which buses many of its employees to work. That would seem to be a good solution to commuting, discouraging people from using private cars in favor of mass transportation. Yet Google came under fire in the London Review of Books as the face of “Janus-headed capitalism” because it treats its employees better than other people, like the illegal immigrants sharing the sidewalks with Google employees waiting for their rides.

“Google bus … contains people the people too valuable to use public transport or drive themselves,” the Review thundered.

It’s the nature of populism that once it puts its targets into the doghouse, everything they touch turns to bone. Startup Nation beware. The tycoons and monopolists are old hat. The next startup company that sells itself to a big multinational, shutting its doors and shipping the proceeds from the sale to investors abroad, could find itself facing a media onslaught. The founders sold for too little, or should have kept the business going. Those poor engineers thrown out into the street! The CEO isn’t a serial entrepreneur − he’s a serial murderer of jobs. Why does he think only of himself and his investors back in New York? Why doesn’t the government do something to stop this?

Tomer Appelbaum