Forget Iran, Israel's Biggest Enemy Is Itself

"Eight years ago, when I sold Indigo to Hewlett-Packard, I made the sale conditional on HP's promising to invest in Israel and increase production here - and it kept its word," says high-tech entrepreneur Benny Landa, a man with ambivalent feelings toward Israel - lots of love, on the one hand, deep concern, on the other.

The story of the sale of Indigo is a case in point. "I thought to myself at the time that HP purchases $30 million worth of services every year through outsourcing," he recalls. "It builds plants outside the United States and uses subcontractors in India, China, Mexico, Singapore and Ireland. But not a single dollar had ever reached Israel. I understood that this was my opportunity to get HP to change things. I spent a year analyzing the Israeli economy in order to present a picture of the country to HP executives. I investigated Israel's social and socioeconomic characteristics.

"When I completed the analysis, I understood that it was a presentation that I could never show them, because the conclusions they would draw would not lead them to build plants in Israel, but quite the contrary: Israel is so non-competitive that no sane firm would do outsourcing here.

"If the considerations are only economic, then not one single large company would build plants here. And this raises the question: How were plants built here? After all, Motorola, Intel and HP all have plants here. The answer is that in each of these cases, there was some Jewish person involved. In the case of Indigo, it was me. In the case of Motorola, Elisha Yanai; in the case of Intel, Dov Frohman; in the case of Vishay, Felix Zandman. So ultimately, I realized that I couldn't show this presentation."

Still, Landa is in a good mood. Eight years after undertaking one of the largest sales in Israeli high-tech history, valued at $830 million, he is working on his new baby: Landa Labs. It's a secret company, and with the exception of Landa and the 70 researchers and scientists involved, most of them with doctorates, very few people know exactly what it's up to. At a convention of the Association of Electronics and Software Industries a week ago Landa revealed, in concise terms only, what the company is working on in its attractive office building in Rehovot: clean energy solutions based on nanotechnology.

Landa Labs is reminiscent of Indigo, a maker of digital printing systems, in its early days. In fact, to this day, HP-Indigo still manufactures these systems in its two Kiryat Gat plants. In his new start-up, Landa also refuses to take money from venture capital funds. This time around, though, he's financing the company from his own pocket and not by selling patents, as he did before striking it rich.

"Our goal is to develop an alternative energy source based on heat," he says. "We've been working on this for nine years. We work in secret, we don't publicize anything. In Indigo, we also worked in secret for 16 years before we unveiled our first product. I hope that this time it doesn't take 16 years.

"It'll be a commercial product, even though we certainly want to save humanity using energy. Obviously, there's also a Zionist element behind all this. If Israel can be freed from its dependence on oil, that would change the geopolitical situation here."

And are you nearly through with development?

"Not yet. It will take years, but I have the best scientists in the country working with me. I choose them very carefully. Both from here and abroad. I recruit them when they're still at the postdoctoral stage, before they've been ruined. I believe we'll succeed."

Why this turn to developing clean energy using nanotechnology instead of returning to the world of print? After all, you're an expert in the field. You could find a new patent and sell it for millions.

"In research, we distinguish among different fields: chemistry, physics, biology. But in nature, no such distinctions exist. Everything is on the same continuum. I worked with print using nanotechnology all my life, but at the time it wasn't called that. The ink and pigments are on the level of nanotechnology. At the time, it was reflected in color and hue. Now I'm working on other qualities related to heat and energy, and that's a development that is relevant not only to printing. I love particles. They're good for many things."

The presentation that was never shown to the HP executives was eventually published by Landa in Israel through the Institute for National Security Studies, in cooperation with the economist Shmuel Even. Although the data was published in July 2007, in a paper called "The Israeli Economy in the Era of Globalization: Strategic Implications," Landa says it is still relevant today.

Why was your attempt to shake up the political establishment unsuccessful?

"My analysis impressed not only the Institute for National Security Studies, but also the Industry, Trade and Labor Ministry and the Finance Ministry. In those days, Ehud Olmert was the minister of industry, trade and labor, and Benjamin Netanyahu was finance minister. They convened a forum where I could present my findings. They were impressed, and Netanyahu's conclusion was that things are very serious and it's time to act. A forum of 10 was appointed for the purpose of addressing the problem. It included four directors general of government ministries, four industrialists, including myself and Eli Hurvitz of Teva, and Olmert and Netanyahu.

"I thought to myself that I had finally succeeded in bringing about change. That finally things would start moving. That government policy would change. A month later, nothing had happened. I picked up the phone and called Hurvitz, and he said to me: 'Don't you read the papers? Netanyahu and Olmert aren't talking.' I asked him what the relevance was, and he replied: 'Do you really think that they'll convene the committee with such political tension between them?' Sure enough, nothing happened.

"People keep telling me to do something to influence the government, but I came as close as possible to influencing the government, and it just didn't happen."

Here are some of the figures Landa collected: As of 2009, Israel was one of the most non-egalitarian countries in the world, with gaps between rich and poor among the widest in the world; as of 2007, the percentage of people employed in the total population was 37.3 percent, the lowest among developed countries and one of the lowest in the world.

Landa adds an up-to-date piece of information: In a recent article about Israeli high tech, The Economist magazine found that the Arab-Israeli and ultra-Orthodox communities are expected to constitute one third of the population by 2025 - but only 39 percent of ultra-Orthodox men and 25 percent of Arab women are employed.

"In Israel, there are few workers relative to the overall population," says Landa. "Only 37 percent work. That's astonishing. There's no similar figure in any of the OECD countries. The burden on those who work is enormous. Unemployment here is 7 percent, but that's only because we don't include in the figures those who don't want to work. If you were to include them, the rate of unemployment would be 20 percent. Among Haredi men and Arab women, the percentage of those who don't participate in the labor market is huge. These are the two poorest groups in the country, despite the government handouts they receive. They also have large families. So even when the head of the family works, the average income per family in these groups is low.

"These two populations - Haredi men and Arab women - have turned into a separate country. There's the State of Tel Aviv, the state of those employed in high tech; and there are the Arabs and the Haredim. The middle class has disappeared. I didn't want to show that to HP. If we don't do anything, the consequences are so far-reaching and so frightening for the survival of the country, that it's dramatic."

How critical is it for Israel to integrate groups such as Arabs, Haredim and disabled people?

"We must. We simply must. The problem with the Arabs stems from fear and discrimination. Racism. Many Israelis don't understand the Arabs. They don't know them. But it's not an insoluble conflict. Fifty years ago, France and Germany were immersed in a cruel war, and today they're part of a joint socioeconomic union. The Jews have to understand that if Israel leaves the Arabs and the Haredim behind, the country will be in jeopardy. There isn't a single democratic society that can maintain stability when the gaps become so great. There will be an outcry here."

If the problem with the Arabs is fear and racism, what about the Haredim?

"With the Haredim, it's more complex. All over the world, the Haredim work. In England, in the U.S., and in other countries, there's no such thing as Haredim not participating in the job market. I don't know how this link developed in Israel. We have to create a situation in which more Haredim participate in the job market."

Can high tech help connect the Haredim to the job market?

"In high tech, they're not being hired, at least not at this stage. They still need training. What high-tech firm would hire someone without an education? Every citizen of this country has to study and receive an education that prepares him for the job market. Every citizen is entitled to that. The problem is that as long as the Haredim hold the balance of power in the government, we can't change the status quo. That's why we have to change the system of government.

"All told, I'm quite pessimistic. I heard Dov Lautman [the former CEO of Delta Galil Industries] say that 20 percent of teenagers, up to age 18, haven't studied the core subjects at school - mathematics, English and science. A country that doesn't prepare its youth for work is in trouble. How is it that it's not mandatory that every child in Israel study the core subjects? What kind of country is this?

"Israeli students place low in international rankings. Once we were leaders in education. This deterioration is a catastrophe for Israel. We have a young generation here that isn't equipped with the tools to cope in the modern world. The level of education is gradually declining. The population is gradually increasing. There are young people here who aren't studying the core subjects. Where will they work?"

But Israel was recently accepted to the OECD, becoming a member of the club of the world's developed countries.

"I'm not pleased by this. The country's leaders see it as a symbol, a sign attesting to the fact that they're doing good work. They're patting themselves on the back, and they feel they're succeeding. In my opinion, this is not good at all. It's very bad.

"Unfortunately, the OECD also includes countries that haven't succeeded. Failing countries. Ten members of the OECD are non-progressive countries. The socioeconomic gaps in Israel are so serious and the trends so dangerous that no economic leader should be proud of the direction the country is taking. The decision to join the OECD was political. And we happen to rank at the bottom of the OECD in many social and educational aspects."

"The world's laboratory"

Landa, 64, was born in Poland and immigrated to Israel from Canada in 1977. With more than 500 patents registered in his name, he is the Israeli with the largest number of patents in the world.

Let's talk about Israeli high tech. Why is Israel so bad at turning start-ups into huge local companies?

"There are several objective reasons. First, Israeli companies don't have a large local market that can serve as a springboard for going abroad. That makes things very difficult on the administrative level. Second, Israelis aren't good at international marketing. Third, giant companies don't manufacture here what exists elsewhere in the world. Fourth, in order to run a large international company, you need a culture of running large organizations, and that doesn't exist here. Fifth, because of the success in the development centers and the fast money that poured into all the start-ups of the Internet bubble a decade ago, a financial investment system was established here. There are outstanding venture capital funds here, but funds don't build an industry. They build start-ups, and with start-ups, you reach an exit and sell.

"It's quite sad. In my day, the dream was to build a factory and manufacture products. A factory that creates jobs, builds businesses and leads to exports. Today, the economic structure of high tech is based on exits. The investors push for that, too. People are mistaken when they think that selling a company is an investment in the country. Selling is nothing more than an exchange of shareholders. It doesn't contribute in any way to the country, unless there are commitments to establish bases for production and export in Israel, as I did in the case of Indigo. But in most exits, that's not the case.

"Israel is becoming the world's laboratory. The research and development is done in Israel, and the production in China. That's not good. The country can't make a living from R&D alone. It needs to provide work for the entire population, not only to people with doctorates.

"Indigo, for example, has 2,300 employees. But it also has hundreds of subcontractors who depend on it. So our 2,300 employees effectively create work for another 8,000 families. These are subcontractors who provide insurance, goods, transportation and food. Foreign investment in Israel today is concentrated in the securities market. That doesn't create jobs, and worse, at the push of a button, it's gone. It isn't concrete, it isn't a factory."

The treasury and the Industry, Trade and Labor Ministry believe that giving millions of shekels worth of grants to Intel will restore investments to Israel.

"I do believe in incentives. I don't believe in grants. In my opinion, there's no justification for bribing Intel. The country doesn't have to be a partner in a business decision that involves where an entrepreneur should build a factory. It shouldn't have to assume that risk.

"When it provides grants, the country takes a risk. You have to give benefits. If the entrepreneur invests and succeeds, then he should receive benefits, like tax breaks. That's what Singapore did when it lowered the corporate tax to zero percent. When you reduce risk, you distort business considerations. This doesn't mean we won't receive a nice return from Intel, but theoretically, it's the wrong direction."

Is it possible that Israel is to blame because it tends to look first through the prism of security and only after does it place education and work at the top of its priorities?

"When I immigrated to Israel, I thought the country's problem was that it was surrounded by enemies. Now I no longer think that it's the country's most serious problem. Israel's problem is internal. A society with such gaps will disintegrate from within."

Iran wants to destroy Israel. You can't ignore security issues.

"In 100 years from now, when they look back at Israel, they won't say we failed because someone dropped an atom bomb on us. We will fail because the country fell apart. The dangers are internal more than external."

And still, Israeli entrepreneurship deserves a nice word, doesn't it?

"My wife doesn't like the Israeli characteristics that comes out on the road, and as much as I hate them, too - the improvisation, the lack of respect for rules, the constant drive to find ways around problems - although these are lethal on the highway, they're fantastic attributes for high tech.

"I think Israelis are amazing. They're initiators. They're creative. But we're deluding ourselves if we think we're so special and so smart. In India and China, they turn out 500,000 university graduates every year. Trust me, they've got a few smart people among them, too. And these few smart people add up to tens of thousands. We don't have a monopoly on creativity and wisdom. We have a few more years of leadership in high tech, but not much more than that."

In addition to praising Israeli creativity and entrepreneurship, Landa has many good things to say about the Israeli style of management. "At Indigo, we set up subsidiaries in Europe and the U.S.," he recalls. "Every quarter, we would assess performance. As one of these assessments was going on at the company headquarters in Boston, the new director of Indigo America showed up to work on his first day at the job. That day, 30-40 people came to give their assessments during the past quarter. In the evening, we had dinner and drank a toast to him. He said that he was simply in shock. 'In every company where I've worked, half of the people sitting there would have been fired,' he said. 'I've never seen a company where everyone argues with the CEO. Who ever heard of such a thing?'

"But that's what typifies Israeli companies. Everything is open. In large American companies, employees try to understand what their leader wants and give it to him. The Israelis want to influence things. To change things. They're allowed to say whatever they want. That's part of the culture. But after a decision is made, everyone accepts what was decided. End of debate."

'I'm pessimistic'

Landa is not afraid of expressing his opinion in public. He doesn't try to whitewash reality, and sometimes, that gets him into trouble. In recent years, Landa has been accused of being a Jew-hater because of statements he made on the subject of Israel's high birth rates. One rabbi, he says, even compared him to Pharaoh.

But the figures do support his argument that the ratio between breadwinners and dependents (including children, of course ) in this country is high. While birth rates around the world have declined from 4.9 births per woman 40 years ago to 2.6 today, in Israel, it has only gone down from 3.8 to 2.9, and is considered the highest in the Western world - even higher than India's. The part of Israel's population that is growing happens also to be that part of the population that shuns the job market.

"So what's happening here?" Landa asks. "Israel has no middle class, and in effect, we have two economies operating here at once: one that resembles Denmark and one that is as poor as El Salvador. There's actually no large middle class here. There's only an average between two extreme populations. And these gaps are a great danger for Israel.

"They say that I'm against children. I'm not. I'm in favor of breadwinners. We're a country with a lot of children but just a few breadwinners. That's the important point. Let's say that the annual budget for educating a child is $5,000. Over 12 years, that's $60,000. In a family of 10 children, that means $600,000. Who will pay for that, the parents of that family with 10 children? That's an excessive burden."

What kind of Israel would you like to see 10 to 20 years down the road?

"An Israel that makes peace with the Palestinians. That understands that we have to compromise for genuine peace, even if it's painful. A less racist Israel. Surveys conducted among teenagers today show that racism is a widespread phenomenon. I'm troubled by the lack of respect for the other. For those who are different from us. We hate the other, whether we're talking about Arabs or Haredim. It can't continue this way. We have to make sure that more Israelis get to know Arabs and are exposed to them.

"I would like Israel to switch to another system of government, a system of regional elections that neutralizes extremists. Today, you elect a party rather than a Knesset member. But if you make the transition to regional elections, you can neutralize the extremists and vote directly for the people who in your opinion are most suited to be MKs.

"Take the U.S., for example, where there's a mosaic of cultures and yet extremists don't control the Congress. There was a panel [here] called the Magidor Committee on governmental reform. Unfortunately, it was established by former President Moshe Katsav. It recommended switching over to a regional system. Its recommendations were totally ignored. Kadima, Likud and Labor said that they're in favor of changing the electoral system. If they really do go ahead with this change, that would eliminate the country's dependence on small racist parties."

Are you pessimistic or optimistic about the future of the country?

"I'm optimistic by nature, but I'm a man of graphs. And when I look at the trends, I don't see any light at the end of the tunnel."